Tax Ethical Case
ACC 406
1. What is the ethical issue in the case?
Samuelson, one of the most important clients at B&C is stressing to the firm that he wants the firm’s expertise to help reduce taxes on his accounts. Peter, a tax partner who is a more inclined risk taker has taken on the project, but his methods are proving to be illegitimate. He is claiming that top clients do not need third party verification on their tax information when other clients are required to have this verification. Jessica has looked at the past files and found major discrepancies that would only incur more expense for Samuelson. If she made these discrepancies known, they might lose Samuelson as a client, who makes up a large part of B&C’s business.
2. What factors contributed to the ethical problem?
The factors include the fact that Samuelson is a large portion of B&C’s business and that the firm feels the need to cater to Samuelson’s desires even if it is out of the bounds of doing business strictly by the book. Another is that Peter has allowed for top clients to present tax information without third party verification, even though files like the Samuelson harbor many discrepancies. The firm’s desire to grow comparably to the size of a big four firm has led players in the firm to act more lenient. 3. Identify the stakeholders and their interests.
Samuelson is looking to reduce his taxes without splitting up his business among his sons. He is looking to B&C to come up with another way in which he can cut down expenses.
Peter wants to grow B&C to a top profile Tax Service firm as he had successfully done in California. In doing so, he wants to be more lenient with B&C’s high stake clients so as to cut their expenses and save them more money.
B&C has a duty to its clients to provide accurate and professional tax services. Building business is always a goal, but if it is through illegal means, then the firm is in danger of being scrutinized in the future by IRS.
Jessica has done a lot to achieve her rank at B&C. She wants to help the company grow but she wants to do so in a morally and ethically correct way.
4. What is Jessica’s responsibility and duty to each of the stakeholders identified above?
Her responsibility to Samuelson is to provide expertise to help his company cut down on tax expenses in a legal manner.
She has a duty to keep her peers on track with correct methods of dealing with clients’ information. She needs to get Peter to understand that cutting corners will only hurt the company in the long run.
Jessica has a responsibility to her firm to help business grow while at the same time keeping it out of danger of being audited and punished for unethical practices.
She has a duty to herself to continue doing business to the best of her ability. Striving for anything less with wreak havoc on her conscience and may hurt her career down the line.
5. Based on your answer, does Jessica have a duty to the client, the public or her employer? And why?
She has a duty to each of these stakeholders. If her client’s files were to be audited by an external agency, that company may come under scrutiny and bad press and ay be liable to pay damages. The public makes decisions in the market based on the correct figures presented by the tax/accounting firm. If these figures are skewed, it misleads public investors. Her employer relies on Jessica to report truthfully. If an external agency were to find B&C guilty of fraud, it could shut down the firm, or make them liable to pay damages.
6. What standards and regulations (Conceptual Framework) can Jessica use to assist her in making the “right” decision? Be specific about what components are relevant to our case.
According to the Statement on Standards for Tax Services, Jessica can look to SSTS No. 3 which states that a tax professional may rely on a third party verification. The Samuelson file was not cleared by a third party, therefore cannot be deemed correct. She can also use SSTS No. 6 which states that if a tax professional finds an error they must alert the taxpayer and disclose any consequences of such an error.
7. What ethical and professional values were ignored by Jessica? Peter? The firm? And Samuelson?
Jessica ignored any ethical and professional values when she did not act on her gut instinct that the procedures that Peter was using were incorrect. The firm was ignoring these values as well since they did not have controls in place to monitor decisions made by employees. It seems that the firm does not have ethical guidelines for its employees that stress the need to abide by laws and regulations. Samuelson should have had its files verified by a third party source to ensure the validity of its information. This will have kept the Samuelson business from getting into financial troubles in the future.
8. If you were Jessica, what would you do next? And why? Use an ethical decision model (Google “ethical decision model” to find what this is) to answer these questions. You also should take into consideration your answers to previous questions.
If I was Jessica, my next step would be to approach Peter with the information I had gathered regarding Samuelson’s files. My moral judgment led me to understanding the ethical flaw in Peter’s methods; therefore I must bring my objection to him to see if I can reason with him. After talking with Peter about the consequences of the actions that had been taken, I would go to high authority at B&C where they might be able to come up with a new approach to the problem and put an end to Peter’s leniency with top end clients.
9. Do you think that the existing standards and regulations discussed in # 6 provide sufficient guidance for tax accountants in ethical matters? Why?
I believe that the standards in place are almost sufficient for accountants in all situations. According to SSTS No. 6 alone, if a professional should find an error, the error should be made known to the taxpayer. And if the taxpayer does not fix the error or disclose this information to the IRS, the professional can terminate the relationship. I believe that the standards need to make it necessary to make the errors public, so that misdemeanant taxpayers are not able to go to another professional who might not uncover the error.
1. What is the ethical issue in the case?
Samuelson, one of the most important clients at B&C is stressing to the firm that he wants the firm’s expertise to help reduce taxes on his accounts. Peter, a tax partner who is a more inclined risk taker has taken on the project, but his methods are proving to be illegitimate. He is claiming that top clients do not need third party verification on their tax information when other clients are required to have this verification. Jessica has looked at the past files and found major discrepancies that would only incur more expense for Samuelson. If she made these discrepancies known, they might lose Samuelson as a client, who makes up a large part of B&C’s business.
2. What factors contributed to the ethical problem?
The factors include the fact that Samuelson is a large portion of B&C’s business and that the firm feels the need to cater to Samuelson’s desires even if it is out of the bounds of doing business strictly by the book. Another is that Peter has allowed for top clients to present tax information without third party verification, even though files like the Samuelson harbor many discrepancies. The firm’s desire to grow comparably to the size of a big four firm has led players in the firm to act more lenient. 3. Identify the stakeholders and their interests.
Samuelson is looking to reduce his taxes without splitting up his business among his sons. He is looking to B&C to come up with another way in which he can cut down expenses.
Peter wants to grow B&C to a top profile Tax Service firm as he had successfully done in California. In doing so, he wants to be more lenient with B&C’s high stake clients so as to cut their expenses and save them more money.
B&C has a duty to its clients to provide accurate and professional tax services. Building business is always a goal, but if it is through illegal means, then the firm is in danger of being scrutinized in the future by IRS.
Jessica has done a lot to achieve her rank at B&C. She wants to help the company grow but she wants to do so in a morally and ethically correct way.
4. What is Jessica’s responsibility and duty to each of the stakeholders identified above?
Her responsibility to Samuelson is to provide expertise to help his company cut down on tax expenses in a legal manner.
She has a duty to keep her peers on track with correct methods of dealing with clients’ information. She needs to get Peter to understand that cutting corners will only hurt the company in the long run.
Jessica has a responsibility to her firm to help business grow while at the same time keeping it out of danger of being audited and punished for unethical practices.
She has a duty to herself to continue doing business to the best of her ability. Striving for anything less with wreak havoc on her conscience and may hurt her career down the line.
5. Based on your answer, does Jessica have a duty to the client, the public or her employer? And why?
She has a duty to each of these stakeholders. If her client’s files were to be audited by an external agency, that company may come under scrutiny and bad press and ay be liable to pay damages. The public makes decisions in the market based on the correct figures presented by the tax/accounting firm. If these figures are skewed, it misleads public investors. Her employer relies on Jessica to report truthfully. If an external agency were to find B&C guilty of fraud, it could shut down the firm, or make them liable to pay damages.
6. What standards and regulations (Conceptual Framework) can Jessica use to assist her in making the “right” decision? Be specific about what components are relevant to our case.
According to the Statement on Standards for Tax Services, Jessica can look to SSTS No. 3 which states that a tax professional may rely on a third party verification. The Samuelson file was not cleared by a third party, therefore cannot be deemed correct. She can also use SSTS No. 6 which states that if a tax professional finds an error they must alert the taxpayer and disclose any consequences of such an error.
7. What ethical and professional values were ignored by Jessica? Peter? The firm? And Samuelson?
Jessica ignored any ethical and professional values when she did not act on her gut instinct that the procedures that Peter was using were incorrect. The firm was ignoring these values as well since they did not have controls in place to monitor decisions made by employees. It seems that the firm does not have ethical guidelines for its employees that stress the need to abide by laws and regulations. Samuelson should have had its files verified by a third party source to ensure the validity of its information. This will have kept the Samuelson business from getting into financial troubles in the future.
8. If you were Jessica, what would you do next? And why? Use an ethical decision model (Google “ethical decision model” to find what this is) to answer these questions. You also should take into consideration your answers to previous questions.
If I was Jessica, my next step would be to approach Peter with the information I had gathered regarding Samuelson’s files. My moral judgment led me to understanding the ethical flaw in Peter’s methods; therefore I must bring my objection to him to see if I can reason with him. After talking with Peter about the consequences of the actions that had been taken, I would go to high authority at B&C where they might be able to come up with a new approach to the problem and put an end to Peter’s leniency with top end clients.
9. Do you think that the existing standards and regulations discussed in # 6 provide sufficient guidance for tax accountants in ethical matters? Why?
I believe that the standards in place are almost sufficient for accountants in all situations. According to SSTS No. 6 alone, if a professional should find an error, the error should be made known to the taxpayer. And if the taxpayer does not fix the error or disclose this information to the IRS, the professional can terminate the relationship. I believe that the standards need to make it necessary to make the errors public, so that misdemeanant taxpayers are not able to go to another professional who might not uncover the error.