As tax professionals, we possess knowledge that most of our neighbors don’t. Because of that expertise, there’s an expectation that we will behave ethically and use that specialized knowledge for the benefit of society at large instead of enriching ourselves or our clients unjustly. That’s why I think it’s important to reflect on our ethical responsibilities, no matter what time of the year.
Tension Between Three Forces
Maintaining an ethical stance means balancing three forces:
- Clients who want to pay the least possible amount of tax. It’s our duty to help them pay the smallest amount of legally owed tax. Most clients want to pay their fair share, so someone who feels they shouldn’t pay any tax might not be a great client to work with. At a previous firm, we found out the hard way that a client who didn’t want to pay any taxes also had no qualms about not paying our bills.
- Federal and state taxing authorities that need tax revenue to fund government operations also exert pressure on us. Tax laws and regulations sit squarely between the government’s desire for revenue and our clients’ desire to pay as little as possible. This is the framework we follow to balance these opposing forces.
- Our own reputations. We’ve all heard stories about otherwise reputable tax pros who stepped into the dark side and ruined their reputations – and maybe even went to prison.
Beware of Unconscious Bias
An article in the Harvard Business Review examined the role “unconscious bias” plays when auditors overlook or even misrepresent information unfavorable to their clients. Because auditors are hired, fired and paid by the companies they audit, the auditors may be motivated to return a clean audit opinion, even when there’s contradictory evidence. Familiarity and lengthy relationships with a client also can tempt auditors to overlook damaging information. Ignoring minor or insignificant information can lead to what becomes an unavoidable train wreck.
That same unconscious bias can impact tax pros. I’m not saying that we might bend the rules just because we enjoy working with our clients and want them to come back year after year. What I am saying is that being aware of this very human tendency toward unconscious bias can help keep us off that slippery slope.
Professional Standards as Helpful Guidance
If you’re a CPA or EA, you’re governed by the rules in Circular 230. CPAs also need to adhere to ethics standards from their state accountancy boards, and members of the AICPA are bound by AICPA professional standards. Tax professionals who aren’t members of any of these groups are still bound by the expectation of society at large that we will use our specialized knowledge to benefit the public at large.
Circular 230 and the AICPA’s Statements on Standards for Tax Services (SSTS) are full of wise advice that helps us serve our clients, makes the tax authorities happy and keeps our reputations as trusted advisors intact. If you haven’t read them lately, they’re worth a review.
Here are a few of the guidelines to help tax professionals (and our clients!) stay out of trouble:
Errors or omissions: Circular 230 and SSTS 6 say that if we come upon information that indicates there’s an error or omission in a prior tax return, it is our responsibility to point this out to the client. While it’s up to the client to decide what to do about the problem, tax practitioners might want to end the working relationship if nothing is done to fix the problem.
Minimizing tax liabilities: SSTS 1 says that we have a duty to help clients pay the least amount of tax legally owed, but you can’t go out on a limb and take a position that doesn’t have at least a realistic possibility of being sustained if the situation is challenged.
Verifying client information: SSTS 3 says that we can rely on the information we get from clients without performing any further verification. However, if that information appears incorrect or inconsistent, we need to follow up. Looking at tax returns from prior years is a good way to check for consistency.
Keeping ethics top of mind ensures we’re living up to society’s expectations of us as professionals and helps maintain our reputations as trusted advisors!