Providing Tax Advice Case Study

Haley Healea - Red ID 812754248
ACCT596 SECTION 19:00
May 7, 2013
Final
Providing Tax Advise Ethical Concerns
Ethical issues surround all parts of the accounting profession. A case regarding providing tax advice demonstrates a prevalent ethical circumstance. In the case presented in the Brooks and Dunn text, two female accountants discuss the areas of accounting in which they practice, Sophia concentrating on not-for-profit, as Maya prefers tax accounting. Sophia feels the accounting profession’s top priority is public interest, not profits. She claims tax accounting is using loopholes in the government tax system to save companies money, and put it in the pockets of executives and tax accountants for their own benefit. She feels this takes
away government funds, which could have bettered some source of public interest. Sophia counters the argument stating, it is not a use of “loopholes” but strategic, honest tax advice that is her means of making a living. It is explained to clients in a truthful manner, implementation and use is up to the client. Taxes are still paid on money earned by accountants and businesses. Money saved by companies is reinvested in different business ventures, thus still beneficial to public interest. Sophia feels Maya should care more about public interest. This situation shows the conflicting views behind upholding public interest and performing services rendering tax savings, who receives tax advice and compensation based on the amount of tax savings.
There is no basic conflict of interest between upholding the public interest and providing tax advice that reduces the amount taxpayers pay to the government. No specific proof exists that giving the government money through taxes is in the public’s best interest. Taxes are a means of income for government spending. They are not linked to any specific public interest however. It is beneficial the government receives money for spending in order to better the country as a whole, but it is also beneficial for businesses to save money in order to reinvest, grow, and spend to improve the economy and benefit society. In coming to this decision, there are no overall consequences or harms to public interest from tax savings, it is the right of a company to hire a consultant and devise a tax plan, in following guidelines the savings would be fair, and the motivation of the company in deciding to act on a tax savings plan would not cause future governance problems. As long as tax advice and services are provided with respect to the fundamental principles in codes of conduct for professional accountants, which includes acting in public interest and maintaining the ability to serve public interest, there is no conflict of interest between providing tax advice leading to reduced taxes and upholding public interest.
Accountants can also maintain public support while giving tax advice by following the fundamental principles of codes of conduct for professional accountants and the IFAC Code of Ethics for Professional Accountants. Support from stakeholders depends upon the credibility of the tax consultant’s commitments, strength of competitive advantage and reputation, derived from their credibility, reliability, trustworthiness and responsibility. In following the guidelines, accountants are required to perform with integrity, objectivity and independence, professional competence, due care, professional skepticism, confidentiality, and to not be associated with misleading information. Keeping this credibility of the profession allows the public to remain confident in the trustworthiness of accountants. In making sound, legal, tax advice, and informing clients of any possible risks, accountants reinforce trust and their professional standing, leading to support from the public.
This also pertains to providing tax advice benefiting only the wealthy or those who can afford to pay for the advice. Any tax advice given will be sound and legal, following the ethics guidelines imposed upon the profession, which maintain public interest. To whom the advice benefits does not impair whether it is in public interest. Tax advice is more of a luxury rather than a necessity and it is fair those who can afford it reap the benefits. Tax advising is a profession as it requires extensive training, is a provision of important services to society, skills are intellectual in character, is a licensed profession, and is represented by organizations and associations. Being a profession, this is a means of living for those who are certified and practice, therefore making it acceptable to charge for services. Tax accountants providing highly specialized tax advice to naïve clients is not considered a paternalistic act. This profession requires specialized and advanced skills many do not possess, which is why certified specialists are hired. The tax accountant is not limiting the client’s liberty or autonomy, as the client is paying for the service, and ultimately only receiving advice on plan. The client, naïve or not, still holds the ultimate power of making the decision.
If a tax specialist spends only an hour on a plan saving a client $1 million, it is ethically acceptable for the specialist to charge for more than the one hour billing rate, as long as it is explained in the engagement and accepted by the client. They are providing a professional service that is not judged only upon the time spent on devising a tax plan, but the overall outcome and benefit to the client. Looking at another perspective if the client already had a solid tax plan and the tax specialist only saved the company $100,000 from a plan devised in an hour, then it is fair to charge less than if savings were $1 million as the company is not receiving as large a benefit from the work performed. Each business varies and thus for each client of a tax professional, the tasks and time to complete the plan vary, making it fair and ethically correct for the tax accountants to be compensated based on the outcome of their work and tax savings. Tax accountants could set up compensation as a percent of the tax savings, making the amount of compensation for each job to be weighted equally. If the client is informed of the compensation terms there is no harm to either party, the rights to compensation will be accepted, as well as fair in regards to basing it off of total tax savings, and guidelines of ethical standards and behavior for the accounting profession will be met. Therefore as long as the client is informed in the engagement the terms of compensation, it is ethically acceptable to charge clients based on the tax savings incurred due to services.
In interpreting the question, “is it ethically correct for a corporation to pay $350,000 to tax consultants so that the corporation can save a million in tax,” as the corporation paying the tax consultants before hand to ensure a million savings in tax, this is unethical. Unless the consultant has already done work and has a reasonably probable estimate of a million savings, it would not be ethical to pay the consultants for these savings, as there is no guarantee the savings amount is legally possible. The accountant would therefore be paid for services that have not been performed and this would lead to an increased risk of unethical behavior such as fraud or misstatement in order to meet the benchmark of a million in savings. The foundation of the profession is significantly delineated by and founded on ethical considerations rather than techniques and tools. In accepting this engagement the tax consultants would be concerned more with techniques to get to the amount versus the ethical nature of a sound, legal tax plan. When making a decision on this issue in terms of consequentialism, if the accountant was not able to meet the savings of a million, they would have to either illegally find a way to or compensate the client. This goes against the rights and duties of the profession (deontology) as they would not be meeting the professional standards in regards to legal, sound tax advice (virtue ethics), and this would not be fair to the client or profession as a whole (justice).
After evaluating these situations in relation to the case of the conflict between the two women described in the first paragraph, it is concluded tax accounting is as much of a profession as not-for-profit accounting.
It is ethical the tax professional be compensated for tax advice given to any client with means of paying for the advice as it is his/her right (deontology and justice), in accordance with the ethical guidelines and standards of the profession (virtue ethics), which uphold public interest (consequentialism). Maya’s overall argument for tax accounting could have been improved with additional facts concerning the standards accountants must adhere to that promote decisions in the public’s best interest. This would have strengthened the ethicality of her argument by showing the ethical nature of the rights and duties of accountants to stakeholders including the public, as well as explaining the professional organizations and codes of conduct that guide ethical behavior of the profession. Sophia would then better understand Maya’s right to compensation for her work, as tax accounting is a profession requiring specialized skill and knowledge, which entails the duty to act within ethical guidelines regarding the interests of the public. Sophia could have also analyzed the consequentialism behind the ethical decisions regarding tax savings and upholding public interest. She could have found there are no negative consequences or harm directly related to compensation of tax services or tax savings from tax
advice.