by Brian Mahany
Am I the only one disturbed by this headline? The IRS paid an in-house corporate accountant $4.5 million for turning in his or her own employer over an unreported tax debt. To add insult to the injury, the accountant’s identity is protected under the whistleblower rules.
To be clear, we do not advocate tax evasion. Everyone suffers when one person consciously decides to cheat the system. Everybody also loses, however, when the government rewards accountants for turning in their clients or employers.
Unfortunately, we may never know the details of this award payout. Whistleblowers are protected under the statute. Was it intentional evasion that the accountant called to the attention of the IRS or simply a difference of opinion on a complex section of the tax code?
Accountants and lawyers have a duty to their clients. If a client asks us to do something illegal, the correct course of action is to simply find other employment. There is a place for whistleblower programs, just not to reward accountants and lawyers.
Business owners must now be frightened that anything they say to their accountant may be secretly turned over to the IRS in the hopes of receiving an award. It’s a bad day for accountants and their clients.
What’s interesting about this case is that it is the first award paid out under the new IRS whistleblower program released in 2007. Does the fact that the award was paid to a CPA have any significance? I hope not. The effect on the relationship between accountants and their clients could be further jeopardized if the IRS expects that private accountants will become their eyes and ears. (Had this been a tax attorney, the lawyer would have faced severe disciplinary action including disbarment.)
Business owners need to remember there is no accountant – client privilege like that enjoyed by lawyers. While we still support CPA’s, today’s award serves as a reminder to taxpayers to first secure competent tax counsel when confronting thorny tax problems or possible compliance issues. If nothing else, the lawyer can always hire the client’s CPA under the law firm’s privilege.
Will that protect the client? The water just got a lot murkier.
Mahany & Ertl is a full service boutique law firm concentrating in tax matters (including criminal tax and U.S. Tax Court litigation), fraud recovery and white-collar criminal. We have worked with CPA’s and accountants across the United States from our offices in Milwaukee, Detroit and Portland.