Rule Atlas
IRC § 6694(a): Circular 230 & AICPA SSTS
Under IRC § 6694(a) (AICPA / FASB / IRS), circular 230 & AICPA SSTS establishes the authoritative rules tested on the CPA Exam. Master the ethical and regulatory frameworks governing tax professionals. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
Table: OPR Sanctions for Practitioner Misconduct
| Sanction | Description | Severity |
|---|---|---|
| Censure | A public, formal reprimand from the OPR. The practitioner's name is published, but they can still practice. | Low |
| Suspension | A temporary loss of the right to practice before the IRS for a defined period. | Medium |
| Disbarment | A permanent revocation of the right to practice before the IRS. This is the most severe sanction. | High |
| Monetary Penalty | In addition to other sanctions, the IRS can impose monetary penalties on the practitioner and/or their firm. | Varies |
Maria, a CPA, is preparing the 2026 tax return for her client, Innovate Corp. The client's controller insists on deducting a $50,000 expense for a new marketing campaign. After research, Maria concludes that the position is not frivolous and has a 'reasonable basis,' but it fails to meet the 'substantial authority' standard. The client is concerned about potential IRS penalties but still wants to claim the deduction. According to the AICPA Statements on Standards for Tax Services (SSTS), what is the most appropriate action for Maria to take?
Worked Example: Deconstructing the 'Gray Area' Deduction
Scenario: You are a CPA preparing a corporate tax return. A senior partner directs you to take a $500,000 deduction for which your research indicates there is only a 25% chance of being sustained if challenged by the IRS. The partner argues that disclosure is not necessary.
- Step 1: Research and Classify the Tax Position. A 25% chance of success meets the reasonable basis standard (generally >20%) but falls short of the realistic possibility standard (generally >33.3%) and the substantial authority standard (generally >40%).
- Step 2: Apply SSTS No. 1 for Ethical Guidance. As a CPA, your ethical obligation under SSTS No. 1 is to ensure an undisclosed position has at least a realistic possibility of success. Since this position does not, you cannot ethically recommend taking the deduction without disclosure. You can, however, prepare the return if the client agrees to adequately disclose the position (e.g., on Form 8275).
- Step 3: Apply Circular 230 and IRC §6694 for Penalty Avoidance. To avoid preparer penalties under IRC §6694 for an undisclosed position, the position must have substantial authority. Since this position lacks substantial authority, taking it without disclosure would subject you to penalties and violate your duty of due diligence under Circular 230.
- Step 4: Formulate Your Professional Conclusion. You must advise the partner that taking the deduction without disclosure violates both the AICPA's ethical standards and the IRS's rules for tax preparers. Therefore, you must refuse to sign the return unless the client agrees to disclose the position.
Common CPA Exam Distractors on IRC § 6694(a)
- 1Use this framework to deconstruct any ethics question on the REG exam:
- 2Step 1: Identify the Practitioner and the Forum. Is the professional a CPA? The question likely triggers AICPA SSTS. Is the action "practice before the IRS"? Treasury Circular 230 is the governing authority. If the person is a CPA, both may apply.
- 3Step 2: Pinpoint the Specific Duty in Question. Is the scenario about a questionable tax position, a conflict of interest, knowledge of an error, or fees? Each has a specific, testable rule.
- 4Step 4: Evaluate the Consequences. The question may ask about potential sanctions (censure, suspension, disbarment under Circ. 230) or preparer penalties (under IRC §6694). Connect the violation to the correct outcome.
- 5Candidates often interchange the standards for tax return positions. Memorize this hierarchy, from highest to lowest standard:
Frequently Asked Questions: IRC § 6694(a)
What is the core rule under IRC § 6694(a) (Circular 230 & AICPA SSTS)?
Under IRC § 6694(a) (AICPA / FASB / IRS), circular 230 & AICPA SSTS establishes the authoritative rules tested on the CPA Exam. Master the ethical and regulatory frameworks governing tax professionals. VoraPrep verifies every threshold, worked table, and practice question below against the current CPA Exam blueprint.
How is IRC § 6694(a) tested on the CPA Exam?
Use this framework to deconstruct any ethics question on the REG exam: Step 1: Identify the Practitioner and the Forum. Is the professional a CPA? The question likely triggers AICPA SSTS. Is the action "practice before the IRS"? Treasury Circular 230 is the governing authority. If the person is a CPA, both may apply.
Where can I practice CPA Exam questions on Circular 230 & AICPA SSTS?
Test yourself instantly with the free playable CPA Exam question on this page, or launch VoraPrep's full CPA Exam adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cpa.