How Being Ethical Cost You Time, Money, & Friends
© 2014, Ben A. Tallman EA
Have you ever considered what you give-up by being ethical? This article will discuss the dilemma that Tax Professionals face when they try to balance ethical behavior with keeping clients happy. Have you noticed that “ethics” has recently picked-up a negative connotation? When the media mentions ethics, it usually refers to someone getting into trouble for being unethical. Ethics has become a set of rules and standards that cause us to become the Police Officer, Judge and Jury in the monitoring and policing of our own behavior and actions? Isn’t it hard enough to interpret Tax Law? Why do we have to worry about ethical monitoring? Maybe this is why we are called Tax Professionals. Doctors and attorneys are called professionals and they must also uphold high ethical standards. Which takes us back to the question, will being ethical cost me time, money, and friends? I will hold off answering this question for now and allow you to draw some conclusions for yourself.
Let’s look at this issue from the other side and identify reasons for not being ethical. I believe you would agree that greed is at the top of the list. Charging the maximum amount with the minimum effort helps achieve this goal. What about time? If you wanted to use the minimum amount of time you’d always be looking for “short-cuts”. Why wait for the customer to come up with expense figures; you know the average expenses and costs for this type of business. Just drop them in and identify them as estimates. See how easy time-savings can be. A third reason could be popularity. We all like to be popular with our clients. When we ask the client for a mileage log or a $600 charity contribution letter and they say it is at home while “winking” at us. Do we simply accept their word for it because we want to stay on their “good-side” or do we have them come back? Trying to provide good customer service and being well paid for our knowledge and experience is the American Dream isn’t it? Do you see how easy it becomes to justify “questionable” behavior when it seems like we are utilizing good business practices? All those things we try to achieve by building our business; like being efficient, working long hours, and providing good customer service can all be brought to a ‘standstill’ when an ethical issue arises. Let’s explore further.
Money, Time, & Popularity Factor
When it comes to ethical integrity there are three factors we need to concentrate on 1) money, 2) time, and 3) popularity. These are the three areas you must be willing to sacrifice (to some degree) in order to be ethical. You may initially disagree with me, but if you will ‘hear me out’ on this topic, I’ll share my reasoning for this radical statement. We all work hard as tax professionals and continually strive to be more efficient; and this is a good thing! I am not trying to convince you otherwise, but when you run into an ethical dilemma, you need to stop and take a deep breath before choosing your next course of action.
Let me share a hypothetical example, let’s say that you just finished completing a family’s return and because of EIC they are receiving a refund of $5,000. W-2’s total $28,000 (AGI the same) and your 8867 Due Diligence Worksheet shows everything is in order. They rent and have no savings. Very basic! On the way out the door, they want to show you their ‘new truck’. When you heard “new truck” did some part of your brain start paying closer attention? You step outside and get introduced to a $45k truck with flanged wheel wells supporting 4 rear tires and the special Hemi package up front. Do you feel that you might be entering an ethical dilemma? Will you ask questions? Ethical behavior says you must. At least rule out that there is not an inheritance, large family gift, trust fund, or some other non-taxable source responsible for this purchase. By the way, they tell you this truck is a 2014 model which they now own free and clear. With a few questions you discover that he fixes up cars on the side and sells them. They don’t report any of this income because it is none of IRS business! Now do you have an ethical dilemma? Will it cost you money, time, and popularity to maintain your integrity and ethics? You bet it will! If you cannot convince them to report the income, you should return their payment and withdraw from the engagement. Do you think they will tell their friends and family that you took away their $5,000 refund? Could you lose more clients from this ethical debacle? Could being ethical cost you your reputation in a small community? You see where I am going with this.
Making money and being efficient is a good thing; as long as you can identify that feeling you get when something with the client seems wrong. At that point you have to stop. Making an ethical choice is not easy and it is definitely not the default response. It will most likely cost you something and ‘pours havoc’ into that efficient and happy day you were having. I have found that my ethical dilemmas seem to come at the most inopportune times. I am usually behind on my appointments and I am dealing with deadlines. I am sure some of you can relate to what I am saying.
Inner Resolve meets Saboteur
In order to be ethical, you must have an inner resolve to make the right decision while having the mindset of a saboteur! What I am saying, is you must be willing to sink your own ship in order to maintain ethical integrity. You must be willing to return the money you’ve just earned, give up your expended time with no pay, and become unpopular with that client and his family/friends all for the purpose of making the right ethical decision. You are right. It is not fair, but I can tell you it builds character. It may seem like no one else cares, but I assure you, we are all in the same boat. With the new preparer penalties on the table it is the best long-term course of action to protect your reputation and keep you from harm’s way.
If an individual must sacrifice this much to be ethical, you must now realize not everyone is getting “on board”. How do you convince coworkers and colleagues to adopt these ethical standards in their own lives? Great question! If you cannot reach them through philosophical discussion, try showing them what happens to people that ignore ethical behavior and throw caution to the wind.
Preparer Conviction Cases
I have chosen some of my favorite cases to share with you. Most of these are court decisions involving tax preparers that seem to offer better refunds or allow more deductions than a reputable preparer. See if you recognize any of these practices by colleagues in your area.
U.S. vs. Wahid
Abdul Wahid charged with manufacturing tax returns from identity theft victims. The refunds would be routed back to him as fees and other items. His unreported income over a 5 year period equaled $2,921,010. He was convicted of misrepresenting himself as a CPA, mail fraud, theft of government property, identity theft, personal tax evasion, and criminal activity while released on bond. The district court sentenced him to 132 months in prison and restitution in the amount of $1,280,617.33 plus a special assessment of $1,000. Final recommended sentencing in the appellate court was increased from 132 months to 159 months due to the aggravated identity theft issue.
OPR vs. Kaskey
This case was decided by the Office of Professional Responsibility. CPA Tim W. Kaskey, was disbarred for failure to exercise due diligence and a lack of compliance under Circular 230. The case involved an S-corporation return and the personal return of the husband & wife shareholders. Mr. Kaskey alleged that the taxpayers misrepresented their income to him, but the committee observed there was a lack of due diligence by Kaskey and it was inconceivable the taxpayers could pay their living expenses on the amount reported. OPR Director Karen Hawkins stated, “Practitioners …. must make reasonable inquiries if the information furnished by a client appears to be incorrect, inconsistent, or incomplete.
U.S. vs. Gibson
Shawn R. Gibson was charged with falsely claiming deductions and losses on tax returns he prepared, filing false powers of attorney in order to submit modified returns, opening bank accounts and changing taxpayer addresses in order to have the refund come to him. In some cases he would give the customer the original refund and keep the windfall from the amended refunds for himself. Mr. Gibson was sentenced to 34 months imprisonment followed by a 2 year supervised release. In addition, Mr. Gibson had previously been convicted of tax fraud, so a summary judgment was filed and granted “barring” him from all future tax preparation and/or involvement in any tax preparation business.
U.S vs. Statin
Karey B. Statin was convicted of preparing false tax returns by increasing Schedule C income on taxpayers qualifying for EIC and fabricating Schedule A deductions to produce larger refunds. The court determined that a high level of sophistication was necessary to manipulate the earned income credit. Since the preparer knowingly and intentionally included these false figures and statements, his actions were willful. Mr. Statin was sentenced to 51 months in prison; despite is request for leniency since he served as a caregiver for his granddaughter.
The case involving the grandfather does tug on your heart strings, but you have to remember, he did step-over-the-line when it came to legal, moral, and ethical behavior. We can see how the line between ethical and unethical behavior has become blurred and harder to identify. I can only hope that what we have shared today has brought some clarity to the boundaries and keeps you focused on making the right decision the next time you find yourself in an ethical dilemma.
Ben Tallman is a Tax Practitioner from Atlanta, Georgia. He has taught as an
instructor of local, state, and national organizations for the past decade. Ben has served
on the NAEA National Board as an Educational Foundation Trustee, as a member of the
IRS Regional Liaison Committee, and as Educational Director for GAEA. He recently
appeared on Tax Talk Today in a discussion on the Affordable Care Act. Ben is an NTPI
Fellow and recently celebrated 40 years in tax preparation.