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PROFESSIONAL RESPONSIBILITY AND TAX SCHEMES

August 29, 2005

As indictements start to come down in tax shelter cases, you can expect to see tax professionals use the accountant's version of the Nuremberg defense: "I was only doing it because our national tax office said it was ok."

Two professors at the University of New Orleans (interesting place today, no doubt) look at the conduct of those involved in the scheme, and they conclude that professionals are accountable for what they sign and sell, regardless of what the national tax office says:

As Prof. Calvin Johnson stated, Circular 230 require a
‘‘one-in-three realistic possibility of success.’’ The ‘‘audit
lottery’’ factor and ‘‘dumb agent’’ are not acceptable
defenses for tax professionals.

That essential and elementary advice went unheeded
at KPMG and other leading accounting firms. Not only
did firms not guide their clients to ethical tax positions,
they went so far as to aggressively market son-of-BOSS
tax schemes. The tax professionals who signed those
fraudulent returns should be systematically identified by
accounting firms and promptly dismissed. Further, the
Treasury should identify signers of those returns and
prohibit them from practice before the IRS.

In other words, the article says tax practitioners can't punt responsibility to higher-ups in the firm; in fact, the higher-ups have a duty to enforce proper behavior and hold all personnel accountable:

If the accounting firms are unwilling or unable to hold
those individuals who signed returns employing son-of-
BOSS tax shelters and similar schemes responsible, then
regulators should hold them accountable (for example, as
part of any settlement agreements, deferred prosecution
agreements, or by IRS enforcement action). Importantly,
the recommendation is equally applicable for lawyers
and investment bankers.

You sign it, you live with it.

Thanks to the TaxProf for pulling this article from behind the Tax Analysts subscriber firewall.

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