State tax tribunals and taxpayer representation by CPAs
A potential independence problem?
In an expanding trend, many states have begun to establish tax tribunals that allow taxpayers to appeal final decisions of the state’s tax authority in a forum independent of that authority’s control and without having to incur the costs of formal litigation. These tribunals often allow taxpayers to be represented by CPAs. This representation can be a significant advantage for taxpayers because their CPAs, as tax preparers, are typically familiar with the issues in question and may have handled the matter at the administrative level. In addition, CPAs stand to benefit from being able to offer their clients additional services. However, benefits rarely come without burdens, and, in this instance, the burden is significant, as the question arises as to whether a CPA representing a client in one of these tribunals has impaired his or her independence under the AICPA Code of Professional Conduct (the AICPA Code).
Brian Kirkell and Michael Villa outline the potential for conflict, including state-specific examples, in their article, State tax tribunals: Is taxpayer representation by CPAs a potential independence problem?, originally published in The Tax Adviser.
The authors conclude that while states should be lauded for creating independent forums that allow taxpayers to expeditiously and affordably contest tax assessments and other decisions issued by taxing authorities, CPAs must consider whether the representation impairs independence under Interpretation 101-3 because it may constitute representation in a court rather than in an administrative hearing.