Tax practitioners and ethics

According to a recent study, tax practitioners are less likely to apply moral reasoning than members of the general public. Why?

Is there something about the practice of tax that makes people unethical? One Irish and two UK academics think so. In a paper published in the Journal of Business Ethics in 2013, Elaine Doyle, Jane Frecknall Hughes and Barbara Summers reported on their study comparing 100 tax practitioners in Ireland with 100 members of the general public who had similar levels of education. (They didn’t indicate whether the tax practitioners were accountants.)

First, they compared the two groups using standard measures of moral reasoning for a variety of everyday ethical scenarios. They found that the two groups had approximately the same level of ethical reasoning.

Then they tested the same groups using tax-specific scenarios. For example, Anne is a tax practitioner in an accounting firm whose client is in severe financial difficulty. A tax incentive is available for companies that have a new factory in use by year-end. When the company is asked for documentation, the minutes of a board meeting noting that the factory became operational the final day of the year are provided. But Anne has driven past the factory and sees that it is not occupied. She knows that without the tax refund the company will not survive. The question posed is whether she should file the tax return claiming the tax refund.

The test of moral reasoning used is not a yes or no answer, but rather asks the study participants to rate a number of different considerations (e.g., firm reputation, friendship, the survival of the company, fairness to other taxpayers) according to their importance in making the decision.

The results were, at least to me, surprising. The tax practitioners scored 25% below the general public in their level of moral reasoning. And when tax practitioners working for the Irish Revenue were excluded, the remaining tax practitioners scored 34% lower than the general public.

I naively expected that tax practitioners would have had more respect for the law and more ability to put their professional obligations above sympathy for the client. Why did this study find the opposite to be the case?

The authors note that the similarity of the scores of the practitioners and nonpractitioners in nontax ethical scenarios means that people with low moral reasoning are not self-selecting into the tax profession. (Whew!) Rather, "something connected with working in the tax practice environment causes principled reasoning to be used less by tax practitioners."

It is easy to rationalize that the results are not significant. The study was done in Ireland — perhaps the business and tax environment is different there. Perhaps the tax scenarios used are not realistic or are biased in some way. Perhaps the test results don’t represent what the practitioners do in real life.

Rather than dismiss the results, however, it is interesting to speculate on what aspects of tax practice might lead practitioners to act in unethical ways. Winning a dispute with the tax authorities, or better yet, advising a client on an aggressive tax plan that succeeds without even being audited by the tax authorities, is the highest degree of success for a tax practitioner. It brings monetary rewards in the form of fees and new clients. And it brings the intangible rewards of winning the battle (the tax authorities being the enemy), respect of colleagues and grateful clients. All these rewards can lead to what ethicists call "moral fading," the gradual insensitivity to the ethical issues surrounding the decisions we make every day.

We also need to notice what the authors of the article call the "socialization effect" of the behaviour of experienced tax practitioners on their younger colleagues. If Canada Revenue Agency auditors are referred to in disparaging terms, if we celebrate what CRA "missed" and talk about what the client "got away with," if the most highly regarded tax practitioners are those who find the most loopholes in the law, we are sending a clear message about what is most valued in a tax practitioner. I have done all those things in my career in tax. It is sobering.