Get the latest update on tax advisory work and its impact on independence requirements for CPAs. Learn how recent changes respond to industry feedback and what you need to know about the new proposal.
- Overview of PEEC’s revised approach to tax advisory independence standards
- Explanation of the controversial “more likely than not” threshold and why it was reconsidered
- Shift from a rules-based to a principles-based, facts-and-circumstances approach
- Clarification on what counts as routine tax preparation versus tax advisory services
- Details on the timeline for feedback, effective dates, and how to submit your comments
Welcome back to the Genuine Learning Blog! In today’s blog, we’re diving into an updated look at the intersection of tax advisory work and auditor independence—a hot topic that’s already made an appearance on the blog.
In June 2024, PEEC (the AICPA’s Professional Ethics Executive Committee) exposed a proposal dealing with independence implications for CPAs who provide tax advisory or planning services. Like any good standard setter, they listened to feedback and have now revised their interpretation, responding directly to community concerns.
A Revised Approach: Tax Services and Independence
PEEC’s update centers around Interpretation 1.295.160, which specifically addresses how tax advisory services might impact a member’s independence. In their initial proposal, PEEC introduced a “more likely than not” threshold. The idea was that if a CPA advised or helped plan a tax treatment or transaction—where the significant purpose was tax avoidance, recommended by the CPA directly or indirectly—the position had to be “more likely than not” to be allowable under tax law. If not, PEEC deemed threats to independence too high—no safeguards could mitigate them, resulting in an independence impairment.
For context, the “more likely than not” threshold is the highest used by the IRS; it’s set at greater than 50% certainty that a tax position will hold. Below that are lower levels: “substantial authority” at about 40%, “realistic probability of success” (33%), and “reasonable basis” (20%), which requires disclosure.
Why the Change?
Commenters raised concerns that this was a difficult and high bar. They noted important differences between how the IRS thinks about tax positions and how audit standards treat risk and independence. PEEC listened.
The revised approach does away with a strict threshold. Instead, CPAs now get to rely on facts and circumstances, using professional judgment to determine whether the tax services provided present significant threats to independence. Key factors include the level of confidence in a tax position, whether the service is based on established practice, or whether it is designed solely for tax avoidance. PEEC has steered this interpretation to be more principles-based and flexible, recognizing that every tax situation is unique.
Clarification on Routine Tax Services
Another major concern was whether certain routine tax services, like tax return preparation, might wrongly be swept up in these stricter rules. PEEC clarified: regular tax return prep—including assisting clients with reporting obligations, drafting and compiling data, advising on the treatment of past transactions, and responding to tax authority requests—is not subject to the same independence worries as more aggressive advisory services.
Effective Date & Next Steps
If adopted, the new guidance will take effect one year after publication in the Journal of Accountancy (the AICPA’s usual process for ethics standards). Comments on this proposal are open until December 15, 2025, and PEEC is eager to hear from practitioners—especially those of us who spend a lot of time teaching or performing tax advisory services.
If you’ve got real-world concerns, or ideas for further improvement, make sure your voice gets heard! Email ethics-exploydraft@aicpa.org with your feedback.
