Tax return position definition
/What is a Tax Return Position?
A tax return position is reflected on a tax return on which an accountant has advised a taxpayer, or a position for which the accountant knows the relevant facts and, based on those facts, has decided whether the position taken is appropriate. The following points apply to the accountant who is developing a tax return position.
Advocate Responsibility
When recommending a tax return position, the accountant has the responsibility to be an advocate for the taxpayer, within the boundaries of the law and professional standards. As an advocate, accountants must analyze the relevant facts and apply their technical expertise to identify all legitimate tax-saving opportunities available to the taxpayer. This includes interpreting tax laws and regulations in a way that is favorable to the client, provided that the position taken is supported by appropriate authority and meets the required standards—such as having a realistic possibility of success, substantial authority, or being more likely than not correct, depending on the nature of the position.
However, advocacy does not mean blindly agreeing with the taxpayer or taking overly aggressive positions without proper support. The accountant must balance advocacy with their ethical obligation to ensure the position is not misleading, fraudulent, or frivolous. They should also clearly communicate the risks and potential consequences of taking uncertain positions, including the likelihood of IRS scrutiny or penalties.
Standards Compliance
The accountant should comply with those standards imposed by the applicable taxing entity when recommending a tax return position. If there is no written standard associated with the tax position, then the accountant should not recommend a tax return position unless he or she has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits. However, the accountant may recommend a tax return position by concluding that there is a reasonable basis for the position and advises the taxpayer to disclose the position.
Related AccountingTools Courses
Penalty Advice
When you recommends a tax return position to a taxpayer, you should advise the taxpayer about the potential for any penalty consequences of taking the recommended position, as well as any opportunities for using disclosures to avoid these penalties. This can be a significant issue when prospective penalties are substantial.
Cautionary Advice
The accountant should not recommend that a taxpayer take a tax position that takes advantage of the audit selection process of the relevant taxing entity, or because it merely serves as a position taken in order to obtain negotiating leverage with the taxing entity.