2005 Lyceum Speaker Series: Integrity

October 26, 2005
Tax Professionals Must be First to Keep Integrity in Check
by Kate McCann

Arnold Sussman, an American businessman at the turn of the century, hadn’t had a lucky break until the night he was enjoying dinner at a restaurant with a friend. At an adjacent table he overheard a man’s plea. “My wife’s schnauzer died this week and I’d give $200 for a good schnauzer to replace him.”

Jumping at the opportunity, Sussman approached the man and said that he had a great schnauzer, but couldn’t bear part with it for less than $250. Agreeing to the deal, the man asked that the schnauzer be dropped off the next morning. After the man had walked away, Sussman said to his dinner mate, “this is great, now I just have to find out what a schnauzer is.”

Besides being small German dogs with wiry salt-and-pepper coats, schnauzers metaphorically represent those quick decisions that tax professionals make in order to satisfy a customer. Thomas Fuller, firm director at Deloitte-Washington, said that tax offices often sell schnauzers, not having the technical expertise to do what they said that they would do or the technical expertise to understand what they are selling.

“Tax, more than other disciplines, is very compliance-oriented,” Fuller said.

He listed the “lots and lots and lots of rules” to be followed: the Constitution, the Internal Revenue code, regulations, administrative rulings, non-binding guidance, professional codes of conduct and firm guidelines.

“It is a given that you’re going to comply with what you’re supposed to comply with, and you’ll do what the law clearly tells you to do, but integrity is a way of deciding what to do when compliance is done,” he added.

At Washington National Tax, a nationwide think tank, Fuller is approached by clients with hard questions, novel questions or questions that involve a great amount of money, and the government is not who answers them.

“The tax professional is the only effective regulator of taxpayer behavior,” Fuller said. “We’re the ones who tell people what and what not to do.”

Since Fuller recognizes that the IRS can’t audit everyone, he says the tax professional “must have integrity even when the client doesn’t.”

Fuller presented two case studies that he had dealt with, each one presenting a problem that split law, ethics, morals and integrity. In both cases, the clients had fallen victim to another’s mistake through no fault of their own, but had failed to report correct tax information. Since they were dealing with un-audited Private Foreign Investment Companies (PFICs), they had little chance of being caught.

However many times he polled the audience for the “right” solution, the participants never reached a 100 percent consensus. This did not mean that the audience failed tax class, but rather, supported Kirk Godel’s theory of incompleteness. The theory states, “there are problems that cannot be solved without going outside of the system itself.”