Ethics II

[DTS]

Once again...

I think I have misunderstood the question. I was not thinking in terms of a divorce, attorneys, etc. when answering the poll.

I don't see why we are obligated to divulge information to a spouse regarding the other's financial situation unless it pertains to this joint return or if one of them wanted to do something like withholding 1099s, W-2, etc., out of the return so the other would not know. I certainly would not do this and if one of them did not like it, they could go fly.

Frankly, I don't know how a spouse won't know of the other's holdings, but I guess you could do it if you felt the need to be deceitful.

Like Armando asked: If were my sister, I'd like to and would put something sharp in his forehead!

Dennis

[Bees Knees]

The question in the poll did not say anything about a divorce, or one spouse hiding income. The question only deals with one spouse telling the tax preparer that he is hiding information from a spouse.

The tax preparer is representing both taxpayers on a joint return. The tax preparer has just learned that one spouse is hiding information from the other spouse.

We do not know what the future will be for this married couple. They may live happily ever after. They may get into a messy divorce. Who knows?

Since we have limited knowledge of what could happen, what are our choices?

I’ll give you a hint. On a joint return, you represent both taxpayers.

[Bees Knees]

One more point just to be clear. All that is implied is the husband is hiding information. The husband did not say anything about not reporting income on the return. Only that he does not want the tax preparer to tell the wife about his financial situation.

You represent both taxpayers on a joint return. What can you do, given the four choices in the poll?

[BOB W]

poll

I answered the pole, "no need to tell wife". She has the tax return and can look for herself if she choses. Besides, all I can express to her is what is on the return. I don't look at balances in accounts as it is not my business, just the tax issues needed for the tax return.

[WhiteOleander]

If the husband is reporting all the income on the return, I don't see why I cannot prepare the return. He is not hiding anything from the wife or the IRS.

The IRS will hold her accountable if she signs the return. She would have to prove some kind of duress for rhe IRS to relieve her of the responsibilty of the return.

If she comes in or calls, I will certainly discuss anything on the return with her.

I would tell the husband this fact. If he didn't like that, then he can take his papers and go elsewhere.

But, just saying he doesn't want his wife to know the info doesn't mean she won't have a right to it.

[DTS]

Sorry I’m just now getting back to this discussion.

Scenario:

A client came in last week with a MFJ tax return. He told me that his wife was not aware of his financial situation and he wanted to keep it that way. The only items on the tax return showing his financial situation are stock sales. I don’t want to get in the middle of a marital dispute, much less be the cause of one. Is it ethical for me to honor my client’s request and prepare the return without first contacting my client’s wife?

Is it ethical to honor the request, prepare the return without first contacting my client’s wife? Honestly, I don’t know the answer to this, as it’s stated. I can’t do both and do I need to contact the wife other than to explain how the return was prepared? Is this a conflict of interest?

In my mind, the question could only be, “How can I honor your request and prepare your return? She’s going to know your financial situation once the return is prepared”.

Dennis

[S T]

Withhold info

I, like Bob W, think that I might still prepare the return as long as I had the engagement letter with both parties signature. Maybe there could be a clause added to the engagement letter to this effect including that both parties on the MJ return are each entitled to any and all information that relates to that return.

I would let the one party that asked that the info be withheld from the other party know that I would share any information relating to the married joint tax return. So if the 2nd party called and asked questions, due to the married joint return status I would be obligated to share any and all information relating to the entries on the tax return regardless of which party provided the information.

Only on a MFS return would the information be restricted.

I would not call the 2nd party to alert them or relay any information .

But then on the other hand, if I felt the information was detrimental in any way to the 2nd party, I would probably decline preparing the return as well.

Honestly, if this was a real life tax prep issue, I would probably decline,

Sandy

[JG EA]

What to do.

One more point just to be clear. All that is implied is the husband is hiding information. The husband did not say anything about not reporting income on the return. Only that he does not want the tax preparer to tell the wife about his financial situation.

You represent both taxpayers on a joint return. What can you do, given the four choices in the poll?

I have clients that keep their papers separate, come in separately to sign, answer questions I may have about their own individual income/expenses and yet file jointly!

I don't mind because I know privacy is the issue and not cheating. I give the copy to whoever comes in last to sign.

This is a chicken answer, but I would keep each one's information separate if it felt OK. You can usually tell.

But, what would bother me is if I felt the TP was forcing his wife to sign.

I don't think any of the poll answers are right on. We do so many clients that file jointly and see only one of them. If you do engagement letters before you file and only one is in the office, do you make them both come in. No, you take the information and send the letter home don't you?.

If I have to worry about every possible legal action and prepare for every possible contingency, well I just refuse to do it. It's like sending a kid out to play in a plastic bubble, because of what could happen. But, what about the unknown - impossible to prepare for everything - a sharp object for instance.

[Black Bart]

My Sister's Keeper?

Just because a spouse signs a return doesn't...mean the spouse knew what was going on...it's a copout to say "She signed the return, don't look at me."

...down the road...attorney gets involved..."Is it true that Mr. Husband told you that he was intentionally hiding financial information from Mrs. Wife, and you prepared a joint return anyway...

...train wreck...Mrs. Wife...1099's...her own...income...doesn't want Mr. Husband knowing about it...you need to be equally...supportive...you need to contact Mr. Wife

Unless you believe there's no conflict of interest.

What a mess! Half say "go for it" -- half say "get out."

If Armando hadn't chimed in with this sermon to the conscience-stricken and counselor-threatened, I'd have told that little voice to "Shut up -- the SUV payment's due." Now, since I've been in the middle of one marital squabble and this is another (not to mention that lawyer); I've chickened out and voted "get out," but, like some say, there's too many unknowable possibilities -- the question defies a clear black-and-white answer.

I protest! Must we get into the preachin' business? Isn't it enough that we have to wrestle with our dirty, rotten, low-down, inexcrupulous clients who, unlike we tax preparers, are constantly cuttin' corners tryin' to make/save some money?

And too, Armando's going overboard in "erring on the side of the angels," as usual --. nobody (except him) is going to call her. It's either do the return and keep shut or tell the guy to hit the road. Otherwise -- this:

Husband: Is my return done?
AB: Yes.
Husband: And this is just between the two of us?
AB: No. Sorry; my ethics wouldn't allow it. I called your wife and told her.
Husband: She knows....about....my stock..sales?
AB: Everything -- the whole nine yards. But be positive. While she may divorce you for losing your shirt in the market; your conscience is clear. And so is mine.
Husband: You crazy #@$&$#% (lunges bodily across desk, hands outstretched, going for the throat)!
AB: Please (gasp-gasp)! Don't take it so (gasp) personally!

[Bees Knees]

Poll is officially closed

The correct answer is, “You need to contact the client’s wife and obtain written authorization to prepare the return.”

NAEA Rules of Professional Conduct, Rule 6, “Members and associates will advise all appropriate parties of potential conflicts.”

Circular 230, Section 10.29(a) states that a practitioner shall not represent a client in his or her practice before the IRS if the representation involves a conflict of interest (tax preparation is a part of the definition of practice before the IRS).

Circular 230 goes on to say the practitioner may represent a client if, among other requirements, “each affected client gives informed consent, confirmed in writing.”

It would be hard to imagine a better example of a potential conflict than a spouse who wants to keep certain information on a joint return secret. Note that NAEA’s code does not say you have to be believe a conflict exists. It uses the term “potential.” In other words, if you keep the husband’s wishes and say you will keep the information secret from the wife, you can’t divulge the information to the wife if she asks. Yet, on a MFJ return, she is your client too. So how can you represent her if she asks a legitimate question about how the return was prepared, and you say, sorry, I can’t tell you how I came up with gross stock sales, or cost basis, etc etc.

Some of you said you would tell her the information if asked. Now you are going against the husband’s request. He could be thinking, I’ll let you prepare the return under one condition, keep the info secret from my wife. So you obviously have a conflict of interest in that you have to decide who’s wishes you will honor. Honoring the husbands wish, you can’t tell the wife anything if asked. Honoring the wife’s wish, you are going to tell her how you prepared the return if asked despite the fact that the husband asked you to keep that information secret.

Armando offered some other possible situations if later they get a divorce, the wife accuses the husband of hiding assets from her, and she learns you were in on the little secret. Can any one say, who wants to get sued?

Some picked #4. That might be a good answer for many, as I would not like to represent two people with a conflict of interest. But the question is worded indicating that you have no other choice. That is wrong. You do have the choice of having both spouses sign a written consent informing each that there could be conflict of interest but that they want you to do a MFJ return anyway.

Another good answer that was not one of the 4 is MFS. But let us assume that for this case, neither spouse wants to file MFS, so that is not a choice either.

Number two is wrong because it does not inform the two that there is a potential conflict of interest. Plus it says nothing about getting written consent from both, as is required in Circ. 230.

Number one is wrong because there is a conflict of interest. It is true that it is not our job to mediate a marital relationship. And for that very reason in a case where the marriage has potential problems, you might want to resign from the engagement. But there certainly is a need to get the wife’s written consent to represent her (by preparing the return) if there is a potential conflict of interest.

I think most missed number three, the correct answer, because you thought you had to tell on the husband. That is not what the answer says. It simply says you have to contact the wife, obtain a written authorization, to prepare the return. Choice four may be better, but that choice implies you have no other choice. Choice three you can do, by obtaining a written authorization. It does not say you have to contact the wife and tell on the husband. It uses the phrase, “to prepare the return.” So in other words, IF you are going to prepare the return, which you have a choice to do, then you need written authorization.

[Bees Knees]

Sandy made a good point when she said “Maybe there could be a clause added to the engagement letter to this effect including that both parties on the MJ return are each entitled to any and all information that relates to that return.” Since both would be signing the engagement letter, now you have written authorization from both parties to prepare the return, and the husband is on notice that if asked, you have to tell the wife about his little secret. I would probably also add some kind of wording to the affect that there could be a potential conflict of interest given the circumstances of their situation. Something that places the wife on notice that she might want to ask you questions, or something along those lines.

Remember too that the rules on ethics is to protect US as professionals. How do we protect ourselves from potential lawsuits? The engagement letter, or some other form of written consent has to protect you from a potential lawsuit in the future when these two get a divorce and she finds out the husband was hiding financial information from her. The wording in your engagement letter has to somehow get you off the blame list.

[jainen]

a single client

>>Members and associates will advise all appropriate parties of potential conflicts<<

I'm glad I'm not a member. Any two of my clients have a "potential" conflict of interest. A construction worker does side jobs for a real estate agent. A retired couple brings in their son's W-2. Actual confidentiality will override potential conflict of interest.

On a joint return, all I do is the return itself, based on the unverified information received. I don't ask one partner to explain the other--together they are a single client.

[jimmcg]

The basic question seems to be who is our client? We have a fiducuary responsibility to represent the best interests of our client. An all inclusive engagement letter signed by all parties prior to the commencement of any work would help clarify this question. My personal policy has always been where there is any potential conflict of interest I inform both clients that I cannot in good faith represent both of their best interests and they each should obtain their own representation. I have enough backlog of work that I do not need any potential conflicts of interest or being a party to any future litiagation.

[taxmandan]

Circular 230, Section 10.29(a) states that a practitioner shall not represent a client in his or her practice before the IRS if the representation involves a conflict of interest (tax preparation is a part of the definition of practice before the IRS).

Circular 230 goes on to say the practitioner may represent a client if, among other requirements, “each affected client gives informed consent, confirmed in writing.”

I don't see where Cir 230 applies to this issue, 230 applies to tax representation before the IRS not with dealing with spouses in the preparation of a return.

The choices aren't the only options, I agree with others that I would tell the husband that I will not withhold information from the wife, she is entitled to know what is on the return but I won't proactively contact her and tell her that the husband is hiding information from her. If he doesn't like that reply and leaves, that's fine. If he still engages me for the return it will be with that understanding, probably in writing.

Daniel

[veritas]

The correct answer is you could prepare the tax return. However the right thing to do is don't get involved in a potential mess.