Ethics is What You Do When No One is Watching You

Craig W. Smalley, EA
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As an enrolled agent (EA), we are told to read Circular 230. I’m going to be honest with you, I’ve never read it all the way through.

I know that, thanks to Arthur Andersen and the whole Enron fiasco, I am required to take two hours of ethics classes each year. Can you believe that Arthur Andersen reformed? That’s not to mention there had been a fight over the tainted name, whose eponymous founder espoused high ethical standards.

The point is that when it comes to ethics, I know the odd things that you specifically have to do, but for most particulars I really don’t know. I have a philosophy: If something doesn’t feel right, I just don’t do it.

This is how serious I take my ethics. Before my wife worked with me, she would have me do her friend’s tax returns. She would badger me about what that friend made for a living, and I refused to tell her. This was met by: “I work in HR, so I can find out if I want.” My thoughts were always, okay, then find out and leave me alone. The next day, my wife would try a different approach. She would say, you don’t trust me. Here I am guarding this person’s compensation, as if I had a security clearance that my wife didn’t have.

In all reality, I was never engaged, meaning there was only a verbal acknowledgement that I would do the return. So, we can say there was a verbal contract. The question would be that since there was no consideration (i.e. money) given to me, was there a real contract. The argument can be made, that with a verbal contact, even with no consideration, the person had the expectation of their right to privacy like any other client. I’ll save that argument for law school. The point is that I would know that I told my wife. It just isn’t right.

What honestly drives me crazy is a company’s referral program, complete with a kickback to you for the referral. Stop and think about this for a second. Imagine your client finding out that you received a kickback for referring them to a payroll service, a financial institution, whatever. Are you willing to lose that client over nickels and dimes? Clients view a referral as an extension of you. If the referral doesn’t work out, you could honestly lose the client. That’s not to mention I now have a monetary incentive to refer my client.

Just think about that for a second. Am I making the referral based on the client’s needs, or my own needs? It’s unethical for a doctor to give you a prescription based on the incentives they receive. If it is not unethical for us, it should be. I just tell people who offer me to make referrals that it’s unethical. That is met by the reasoning that because so many other accountants are doing this it must be fine.

Now, we have all been kids, and some of us have kids and have told them, “Well, if everyone was jumping off a bridge, does that make it okay?” The point is this: It doesn’t feel right to accept money for referring my client to someone, so I don’t do it.

I honestly have no idea why I am on this salesperson’s route, but I am. I can’t remember ever referring someone to Paychex, but I have a salesperson who brings us pie for the holidays, gets me a free Master Tax Guide, which I collect, and I guess thinks persistence works? All of those gifts are simply appreciation gifts even though the salesperson has me mixed up with someone else. I mean, the salesperson knows that we have our own payroll company and we are on her route.

Salespeople crack me up. They are like water bugs: Once they are on you, they are hard to get off. First of all, we have to realize that if we are self-employed, we are not accountants first, we are salespeople. However, our message or pitch is thinly disguised by a true message.

I took a sales class once and never went back. On day one, the teacher said that someone typically needs to hear a message seven different times before they act. This explains why salespeople are so persistent. However, my question on day one to the teacher was, “What if someone is closed off to the message to begin with, does bothering them seven times magically open them up?” The answer I was given turned into 20 minutes of banter between me and this teacher. I never got a satisfactory answer to that question, so I never went back to that class.

The point is that you can basically feel when you are doing something that isn’t right, so quit doing it. If you are unsure, then look it up, see if it is unethical. However, just because you can do something doesn’t mean you should.

I explain ethics to my kids this way, “Ethics is what you do when NO ONE is watching you.” Think about that for a minute.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.


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Feb 23rd 2018 18:28

I like you're take on referral fees...I think it's good to network and have some good people in your pocket for those things that you don't do (e.g., IT) so that you can really help your client. But cash rewards for referrals? No thanks...Just send some potential clients my way...That'll make me happy. I might even go along for a steak dinner if the referral turned out big time...but no cash, please.

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Feb 28th 2018 12:52

You still refuse to take the EA exam without studying. All three parts at once, and no calculator. Bet you anything you fail

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