The Background
In an article I read on the Australian SMSF Advisor (a trade publication for self-managed Superannuations Funds — the IRS treats US-owned SMSFs quite…interestingly) I saw this and my heart dropped:
"The IRS is also introducing a whistle-blower incentive as part of the campaign, which is aimed at accountants, lawyers and anyone who has been assisting a taxpayer, which would include professionals here in Australia with US taxpayer clients.
'The IRS is trying to get professionals to step forward and basically rat on their clients,' [Marsha-laine Dungog of Moody Gartner] said.
1. Whistleblowing is bad for the tax industry's reputation
The tax profession industry already suffers a poor reputation. It is an open secret that small and large players alike in the field encourage a complicated tax code that requires taxpayers to hire them. For example, very few tax professionals supported the hoped-for repeal of the Foreign Account Tax Compliance Act (FATCA), even though the act does did little to raise additional revenue, made life for US expats abroad difficult if not impossible, and foisted compliance burdens on overseas banks. The last thing the tax professional needs is more proof that they do not put their clients first, and would seek a whistle-blower reward to turn in a client that was doing something wrong.
2. The attorney-client privilege and whistle-blowing
The tax industry is made up of CPAs, Enrolled Agents, and tax attorneys like myself. I can't speak for CPAs or Enrolled Agents, but as a tax attorney, the possibility of whistle-blowing seems to undercut the very foundation of the attorney-client relationship.
The last thing I want to happen is for someone to refrain from contacting me to get advice about a situation where they are not in tax compliance. So many issues that tax payers are sure there is no coming back from, we've turned around. So many times taxpayers assume the worst, that they did something. (incomplete thought?)
But first, If someone is really doing something wrong that will hurt someone, you bet I will get in contact with the appropriate authorities. But you know what I won't do? Look to some sort of financial remuneration for doing the right thing.
3. The whistle-blowing rewards result in unreliable evidence
For any tax professional thinking of whistle-blowing on your client to collect a reward: why haven't you've come forward before? If tattle-taling on your client is the right thing to do, why didn't you do it before?
Further, the "ratting-out" of your clients for profit is not the road to riches it may appear to be. First, don't be surprised if the IRS doesn't pay what you helped them collect. They kind of have a history about that. Second, you better be squeaky clean. If you submit false testimony on one of our clients, you better believe we are going to come back hard at you. We are going to examine everything you did. You might wind up humiliated. After you are humiliated, what do you think your testimony will be worth? Probably not a lot. Hence no victory for the IRS, hence no whistle-blower money for you.
Bottom line:
If I think someone is going to be hurt, I have no problem helping to stop that situation. But I do it because it is the right thing to do. Not for some hoped-for financial gain. This philosophy keeps my clients' secrets safe, encourages a healthy lawyer-client relationship, but does properly encourage me to help avoid a preventable tragedy.
Do the right thing because it is the right thing.
