Institute for Business Ethics and Social Responsibility

Question to Ask the Prof:

Under any professional codes of conduct, does a CPA have an obligation (ethical , moral or otherwise) to advise a long-term client ( then 97 years old), that the taxpayer is NOT required to file a Federal (nor State) Tax return? Or alternatively, would it be more ethical and proper for the CPA to recommend to this taxpayer to utilize a FREE tax prep service provided by the IRS VITA program for exactly this scenario. background: for at least the prior 22 years, the (recently deceased) taxpayer had (only) tax returns prepared by the CPA in question. Recently, (over at least the prior 7 tax years) the taxpayers annual income was always less than the federal poverty level (excluding S.S. benefits; none being taxable). So, those recent tax returns all report $0.00 taxable income (Federal & State). According to the the State and IRS 1040 instructions (Chart A), this aged taxpayer clearly was NOT required to file income tax returns. But, the CPA continued to file these unnecessary returns and collect preparation fees.

A (Professor Dresnack): This violates the American Institute of CPAs’ Code of Professional Conduct. The standard involving client advocacy states:

“…there is a possibility that some requested professional services involving client advocacy may appear to stretch the bounds of performance standards, may go beyond sound and reasonable professional practice, or may compromise credibility, and thereby pose an unacceptable risk of impairing the reputation of the member and his or her firm with respect to independence, integrity, and objectivity. In such circumstances, the member and the member’s firm should consider whether it is appropriate to perform the service.”

The AICPA is a voluntary organization, so its rules primarily apply to members, but some of its rules have been adopted into law by various states.

In NY, licensed CPAs are prohibited from engaging in “unprofessional conduct,” which includes “exercising undue influence on the patient or client, including the promotion of the sale of services, goods, appliances or drugs in such manner as to exploit the patient or client for the financial gain of the practitioner or of a third party.”  (Rules of the Board of Regents).

It’s clear from this that at a minimum this violates ethics (AICPA) and probably violates law (Board of Regents).  To me it is obviously immoral.

A (Professor Zhang): The Code of Ethics of the National Association of Tax Consultants states that the tax consultants should “maintain the highest standards of honesty, integrity and confidentiality in all relationships with clients, keeping as the utmost concerns the client’s best interest.” In a word, the behavior stated in the first issue was not in the client’s best interest and thus should be unethical.

Question to Ask the Prof: I need to explain to a company why what they are doing is unethical. My company was hired by an interior designing company to install cabinets in their client’s kitchen. Our carpenter was asked to remove their clients’ appliances, which never was discussed prior? During the removal carpenter realized these high end appliances were built-ins. This means special brackets and trim kits (case / metal box to house appliances with front flat trim showing) were installed into existing cabinetry before the actual units were installed. Unknowing my carpenter tried to remove the entire unit (i.e. microwave) as 1 piece. When the microwave came lose 2 bottom brackets broke, the momentum of those brackets breaking our carpenter fell back with microwave/convection oven fell to the floor. To replace the microwave is $969. Designer decides since the microwave is broken & we’re going to replace it. They can just get all upgraded appliances. We told them we are not going to pay the $831.00 difference for an $1800 for upgrade. The microwave is from 1998 & parts to repair it are no longer available. I spoke to corporate ofc of GE & they said the comparable which the exact model form 1998, just a few new features $969 if it were available. That one was discontinued in 2000. After researching I found the exact unit in California. My issue is that the interior design company is deducting my carpenter’s paycheck for a totally unrelated job. We submitted a claim to our insurance company & they will mail them a check for the $969 that is the cost of this unit if I wanted to buy it today & if it were available. The insurance will not pay $1800 for a microwave that is not comparable to microwave client purchased in 1998. Help me explain how unethical it is to take money from our carpenter’s check. Especially when this check had nothing to do with this accident & our insurance is sending them a check to pay for the unit he broke. How can I explain to the designer our carpenter should have been in the meeting when designer & client decided they will take the money from his paycheck? Please help. This company is also deducting his check for a scratch that one of their client claims our carpenter made. Our carpenter did not do this & there were several people in the room after the custom top addition to existing credenza was installed. The scratch was not there when everyone left. But the next day the client said our carpenter scratched the top of credenza. So in good faith, our carpenter & designer offered to have it repaired; the client refused repair. This to me is a Big Red flag, my theory is the client wanted to check out the custom top addition top & when he moved it he scratched the top of the credenza. So here we go again the designer met with their client & they decided that a 10% refund is fair which is $1850.72 & will designer will deduct 5% from carpenters check, since they really can’t prove he did it & to be fair we will take $925.36 from him. Again this was never discussed with the carpenter or his office. The scratch 10% of the refund for what clients’ custom made top has nothing to do with check that the designer is deductions from. Anyway our insurance is mailing them a check. Our Carpenter needs his paycheck these designers think that his hard earned $ is up for grabs, just because they met with client & decided, that makes it okay. It’s not okay & it not just unethical it is illegal. I am calling attorney in the morning. Also to explain how unethical it is not to include our carpenter in the meeting where a decision was being made regarding his paycheck. Nor was anything ever in writing or sign by all 3 parties to state an agreement had been reached & all parties agree. This to me is blatant robbery at the finest of white color junctions. So unethical and demeaning to a carpenter that does incredible & pristine work. He is as honest as they come. I am at a loss for words. Please help me explain this unethical behavior to this interior deigning firm. Thanks.

A (Professor Barbato): You are asking how best to construct an argument that explains the unfair treatment the carpenter is receiving.  The best way to do this is to simply explain that replacing the damaged microwave with a model of comparable value is fair.  It is not fair to expect a replacement that is of higher cost and higher value.  If they refuse to accept that argument, then the best thing to do is use the justice system to ensure that the carpenter is treated fairly.  It sounds like he is already doing that.