The tax preparation profession is not heavily regulated and has very little barrier to entry, allowing you to start a tax preparation business without years of college coursework. This makes it an attractive career choice for individuals who are committed to learning tax laws and best practices of the industry.
Though there isn’t a single, comprehensive code of ethics that applies to all tax preparers, there are numerous laws and guidelines provided by the IRS and organizations like the NATP or the National Association of Enrolled Agents. By prioritizing tax preparer ethics, you not only protect yourself from legal and business concerns but also contribute to the overall integrity of the tax profession.
What is the code of ethics for tax professionals?
Ethical tax preparation practices are grounded in core values such as integrity, honesty, and accountability. Maintaining ethical standards will foster strong relationships and assure clients that you are handling their finances with care and professionalism.
While there is no single “Code of Ethics for Tax Professionals,” certain types of tax professionals, such as Certified Public Accountants (CPAs) and Enrolled Agents (EAs), do have specific, detailed codes of ethics.
Organizations such as the National Association of Tax Professionals (NATP) have also outlined a code of ethics and Standards of Professional Conduct. The IRS also issues Ethical Guidelines for Tax Preparers under Circular 230, a written body of regulations. Even if you aren’t a CPA, EA, or member of the NATP, it’s wise to familiarize yourself with the codes of ethics they outline.
Many regulations for CPAs may not apply to tax professionals since CPAs have a much larger scope of practice. Reviewing the Code of Ethics for EAs should be sufficient for most tax professionals.
Note: Being well-versed in these standards is a fundamental part of your tax preparer responsibilities, and unfamiliarity with these codes is not a justifiable reason for noncompliance.
What are the professional responsibilities of a tax preparer?
- Accuracy and precision — First and foremost, you must prepare returns accurately, ensuring all tax calculations and returns are accurate to the best of your knowledge. Mistakes can lead to financial consequences for your clients and legal repercussions for yourself.
- Sufficient knowledge of tax law — To prepare returns accurately, you need adequate knowledge of the tax codes relevant to your clients. As a tax preparer, you have a professional responsibility to decline work that is outside your area of expertise or that you are not competent to handle.
- Continued education — Responsible, ethical tax preparers stay informed of changes in tax laws and regulations, ideally through courses provided by an IRS-approved continuing education credit provider.
- Due diligence — Due diligence is required in and all written and oral communications with the IRS or clients. This means ensuring all information is accurate and thorough to avoid misunderstandings or errors. You must perform tax preparer due diligence as outlined in Form 8867 to provide accurate returns. This includes making sure, to the best of your ability, that your clients truly qualify for certain tax credits such as the Earned Income Tax Credit, Child Tax Credit, and others.
- Confidentiality and data protection — You are responsible for safeguarding the sensitive financial information of your clients. Of course, intentional misuse of client data directly violates this requirement, but the IRS could also hold you accountable for accidental data breaches. To mitigate risk and ensure compliance the IRS requires every tax professional to have a written information security plan (WISP).
- Record keeping — The IRS requires tax preparers to keep records of their clients’ returns, documents, and communication. You must also furnish copies of certain documents, such as the finalized return, to the IRS and the client.
- Client communication — You should maintain clear and transparent communication with clients. This includes advertising honestly, explaining the tax preparation process, being transparent about your tax preparation fees and fees associated with any ancillary products – like bank products and identity theft protection.
- Avoiding conflicts of interest — It’s important to identify potential conflicts of interest that may compromise your ability to provide unbiased and objective advice. For example, the NATP’s Standards of Practice specify that “A member should avoid the appearance of an unduly close business relationship with representatives of the Internal Revenue Service.”
What does it mean for a tax professional to be unethical?
Maintaining a standard of tax ethics is essential to fulfilling your responsibilities as a tax preparer to clients. Unethical behavior can manifest in various ways, from intentional fraudulent activities to accidental security breaches. Here are some unethical practices to be aware of and avoid:
Ethical violations
- Fraudulent activities — This includes deliberately falsifying information on tax returns to benefit clients or yourself. One common example is promising larger returns to attract clients and falsifying information to ensure said “larger return.” This can also include misleading clients about your fees and trying to conceal exorbitant charges.
- Conflicts of interest — Conflicts of interest can include placing personal interests above the welfare of clients or engaging in activities that compromise your impartiality.
Professional misconduct or negligence
- Negligence — Making careless errors or failing to exercise due diligence in preparing accurate and compliant tax returns is considered negligent.
- Inadequate communication and record keeping – This occurs when tax preparers provide unclear, untrue, or incomplete information to clients regarding their tax situation, or fail to keep sufficient, organized records.
Breach of trust
- Breach of confidentiality — Sharing or mishandling client information violates the trust placed in you as a tax professional. This can also include accidental breaches due to a lack of data security.
For more information on specific violations that could impact your business, see our guide on how to avoid losing your license as a tax preparer.
What can happen if a tax preparer engages in unethical conduct?
The consequences of unethical behavior in tax preparation can be severe, affecting both your professional standing and personal life. Some potential repercussions include:
- Legal action – Unethical conduct can lead to legal consequences, including fines and, in extreme cases, imprisonment.
- Loss of professional reputation — Your reputation as a tax professional is built on trust. Unethical behavior can irreparably damage this trust, resulting in losingclients and business opportunities.
- Revocation of license or certification — CPAs, EAs, and attorneys can have their licenses or certifications revoked or suspended for engaging in unethical practices, and the IRS can revoke PTINs.
- Financial repercussions — Legal fees, fines, and restitution payments can impose a significant financial burden on tax professionals found guilty of unethical conduct.
How can ethics impact your tax business?
Tax ethics goes beyond avoiding negative consequences. It’s an integral part of business growth and establishing strong client relationships. When you cultivate a reputation for being knowledgeable and ethical, clients gain the confidence to patronize your business and become repeat customers. Here are some key benefits of maintaining ethical standards:
- Ethical behavior builds trust and referrals — When tax professionals demonstrate integrity and transparency, clients feel secure in their services, leading to increased trust. Satisfied clients are more likely to refer others, expanding your client base through word-of-mouth recommendations.
- Reduces risks of audits or complaints — By adhering to ethical guidelines and maintaining accurate records, tax professionals minimize the likelihood of audits and complaints from clients or regulatory bodies. This not only prevents potential legal issues but also saves time and resources.
- Demonstrates professionalism — Upholding ethical standards reflects professionalism and commitment to quality service. This perception enhances client confidence.
- Improves reputation — An ethical approach establishes a positive reputation within the community and industry. A strong reputation can differentiate your business from competitors, attracting new clients who value integrity and reliability in their tax preparation services.
