Ethical Behavior Our Common Obligation

Transcription

1 Ethical Behavior Our Common Obligation Donald Griswold, Reed Smith LLP Southeastern Association of Tax Administrators Annual Conference White Sulphur Springs, WV 23 July 2012 DOC#

2 Overview Goals of this session Sources of guidance Proposed analytical framework Real-life examples (survey responses) Taxpayers Revenue Departments 2

3 Sources of Guidance Professional Organizations Government-Imposed Rules Rules Imposed on Revenue Departments Corporate Policies Personal Convictions 3

4 Rules of Professional Organizations American Bar Association _professional_conduct/model_rules_of_professional_conduct_table_of_contents.html Professional Oaths e.g., California Attorney s Oath ( American Institute of CPAs Tax Administrator Associations e.g., Louisiana Association of Tax Administrators Tax Executives Institute Institute for Professionals in Taxation 4

5 Government-Imposed Rules Sarbanes-Oxley Circular State-specific rules of professional conduct e.g., California Rules of Professional Conduct e.g., West Virginia Rules of Professional Conduct Rules within tax laws 5

6 Rules Imposed on Revenue Departments Taxpayer bills of rights Codes of conduct 6

7 Corporate Policies Company s own ethics policies or codes Association of Corporate Counsel Court-appointed monitoring 7

8 Personal Convictions Individual Moral Code Often the first level of scrutiny of a potential action Individual Character Internal moral barometers Only the starting point; must navigate the whole framework Disincentive of Public Disclosure What-would-your-mother-say test Wall Street Journal Test 8

9 Proposed Act Lose Short Term Win Strategic Considerations Proposed Analytical Framework Detriment Negative Long Term Broader Corporate Interests Benefit Positive - Relationships with the State Revenue Dept. - Impact on future years - Potential future benefit - Good corporate citizen - Culture and/or climate of employees Inconsistent Statutes & Rules (Federal & State) Consistent Legal Considerations Violates Professional Practice Standards Complies - ABA Model Rules - AICPA SRTP - State Ethical Rules - Treasury Circular 230 (analogy) Violates Company Policy Consistent Do Not Proceed with Act Inconsistent Personal Integrity Complies Proceed with Act Personal Considerations - Individual religious, philosophical or moral standards - WSJ Test = practice as way to apply your own individual moral standard 9

10 Real Life Examples of Ethical Dilemmas ~ Today s Survey Responses ~ Dilemmas for Taxpayers & their Advisors 10

11 1. Mistake of Fact Taxpayers & their Advisors Is it ethical:... to sign a settlement agreement which you know contains an error in favor of your company? Yes 7% 11 No 93% Survey Results

12 1. Mistake of Fact Model Rule 3.3(a)(1). Prohibits an attorney from knowingly making a false statement of fact or law to a tribunal, or failing to correct a false statement of material fact or law previously made. Model Rule 3.3(b). Attorneys have a duty of candor to the tribunal. Model Rule 4.1. An attorney shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6. AICPA SSTS No. 6. A CPA is not obligated to inform a taxing authority, nor may a CPA do so w/o client s permission. Circ. 230, A practitioner who knows that the client has not complied with the revenue laws or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the U.S., must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the IRC and regulations of such noncompliance, error or omission. Circ. 230, Addresses practitioners duty to exercise due diligence. 12

13 2. Mistake of Law Taxpayers & their Advisors Is it ethical:... to enter into a settlement agreement without raising dispositive authority that the tax administrator failed to address? Yes 40% No 60% Survey Results 13

14 2. Mistake of Law AICPA SSTS No. 6. A CPA is not obligated to inform taxing authority, nor may CPA do so w/o client s permission. Model Rule 3.3(a)(2). An attorney shall not knowingly fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel

15 3. Settlement Negotiations Taxpayers & their Advisors Is it ethical:... in settlement negotiations or mediation, to understate the actual amount of your settlement authority or limits? Yes 40% No 60% Survey Results 15

16 3. Settlement Negotiations ABA Model Rule 4.1, Comment. A lawyer is required to be truthful when dealing with others on a client s behalf, but generally has no affirmative duty to inform an opposing party of relevant facts. 16

17 4. Settlement Negotiations Is it ethical: Taxpayers & their Advisors... in settlement negotiations or mediation, to omit facts or legal precedents that might be adverse to your settlement position? Yes 36% Survey Results No 64% 17

18 4. Settlement Negotiations Model Rule 3.1. A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law. Model Rule 4.1, Comment. A lawyer is required to be truthful when dealing with others on a client s behalf, but generally has no affirmative duty to inform an opposing party of relevant facts. 18

19 5. Signing Tax Returns Taxpayers & their Advisors Is it ethical:... to sign a tax return that you know is based on an estimate of the amount of tax owed instead of on actual amounts? Yes 54% No 46% Survey Results 19

20 5. Signing Tax Returns AICPA SSTS No. 4. A CPA may use the taxpayer s estimate to prepare return if it is not practical to obtain exact data and the estimates are reasonable. 20

21 6. Signing Tax Returns Taxpayers & their Advisors Is it ethical:... to sign a tax return that you know is based in whole or in part on a position that is not clearly supported by applicable statutes or rules? Yes 36% Survey Results No 64% 21

22 6. Signing Tax Returns AICPA SSTS No. 1 and Interpretation 1-1. A CPA should not recommend that a tax return position be taken with respect to any item unless the CPA has a good faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits if challenged. 22

23 7. State Fails to Ask the Right Questions Taxpayers & their Advisors Is it ethical:... to enter into a settlement agreement without disclosing relevant information not requested by the tax administrator? Yes 43% No 57% 23 Survey Results

24 7. State Fails to Ask the Right Questions AICPA SSTS No. 6. A CPA is not obligated to inform taxing authority, nor may CPA do so w/o client s permission. 24

25 8. Statute of Limitations Brinkmanship Taxpayers & their Advisors Is it ethical:... to remain silent when a tax administrator asks you to extend the statute of limitations for Co. A when you know the assessment should be against Co. B? Yes 38% No 62% 25 Survey Results

26 8. Statute of Limitations Brinkmanship Model Rule 1.6(a). Attorney must maintain client confidences. Model Rule 8.4(c). Prohibits an attorney from engaging in dishonest acts. 26

27 9. Accepting Settlement Offers Is it ethical:... to accept a settlement offer without first notifying the client? Yes 7% Taxpayers & their Advisors No 93% Survey Results 27

28 9. Accepting Settlement Offers Model Rule 1.2. The lawyer must abide by a client s decision whether to settle a matter. Cal. Rules of Professional Conduct 3-510(A). A member shall promptly communicate to the member s client (2) All amounts, terms, and conditions of any written offer of settlement made to the client in all [non-criminal] matters. 28

29 10. Formal Opinions Taxpayers & their Advisors Is it ethical:... to knowingly omit material facts from a formal opinion? Yes 0% No 100% Survey Results 29

30 10. Formal Opinions AICPA SSTS No.7. Taxpayers should be informed that (a) the advice reflects professional judgment based upon the member s understanding of the facts, and the law existing as of the date the advice is rendered. 30

31 Real Life Examples of Ethical Dilemmas ~ Today s Survey Responses ~ Dilemmas for Tax Administrators & their Contractors 31

32 11. Settlement Agreement Error Is it ethical to:... sign a settlement agreement that you know contains an error in favor of your taxing authority? Yes 0% No 100% Survey Results 32

33 12. Sign Erroneous Agent s Report Is it ethical to:... sign a revenue agent s report that you know contains an error of fact or law? Yes 7% Survey Results No 93% 33

34 13. Settlement Agreement Error Is it ethical:... to sign a settlement agreement without raising dispositive authority which the taxpayer failed to address? Yes 23% Tax Administrators & their Contractors Survey Results No 77% 34

35 14. Settlement Negotiations Is it ethical: Tax Administrators & their Contractors... in settlement negotiations or mediation, to understate the actual amount of your settlement authority or settlement limits? Yes 36% No 64% 35 Survey Results

36 15. Settlement Negotiations Is it ethical: Tax Administrators & their Contractors... in settlement negotiations or mediation, to omit facts or legal precedent that might be adverse to your settlement position? Yes 29% No 71% Survey Results 36

37 16. Sign Agent s Report Based on Estimated Tax Due Is it ethical: Tax Administrators & their Contractors... to sign a revenue agent s report that you know is based on an estimate of the amount of tax owed instead of on actual amounts? Yes 54% No 46% Survey Results 37

38 17. Signing Agent s Report Is it ethical to:... sign a revenue agent s report that is based in whole or in part on a position that is not clearly supported by applicable statutes or rules? Yes 14% 38 Survey Results No 86%

39 18. Accepting Gifts Tax Administrators & their Contractors Is it ethical:... to accept an invitation from a taxpayer representative to attend a dinner or a sporting event? Yes 33% No 67% Survey Results 39

40 19. Unsettled Issues Tax Administrators & their Contractors Is it ethical:... to refuse to take a position on an unsettled matter? No 29% Yes 71% Survey Results 40

41 20. Unconstitutional Laws Tax Administrators & their Contractors Is it ethical:... to follow a law that is clearly unconstitutional? No 38% Yes 62% Survey Results 41

42 Contact Information Donald Griswold Reed Smith LLP Washington, D.C