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Ethics in tax resolution: balancing client advocacy and legal compliance

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CPAs specializing in tax resolution often walk a fine line between advocating for clients and adhering to legal and ethical guidelines. Given the complexities of IRS regulations and the high-stakes nature of tax resolution, ethical dilemmas are common. These situations emphasize the delicate balance CPAs must strike between zealously representing clients and upholding their moral and legal obligations. The AICPA’s Code of Professional Conduct provides a framework for addressing common ethical dilemmas in tax resolution and maintaining integrity.  

Navigating common ethical dilemmas in tax resolution 

One frequent issue in tax resolution involves unreported income. It’s not uncommon for clients to believe that income not reported on a 1099 form is exempt from taxation. For example, some clients may assume that cash income doesn’t count if the IRS isn’t immediately aware of it. As one CPA likes to say, “I don’t look good in stripes, and neither do my clients.” The AICPA’s integrity principle mandates honesty in these situations. Educating clients about their obligations protects them legally and reinforces the public interest principle, which fosters trust between the profession and the public. 

Conflicts of interest: identifying and resolving them ethically

Conflicts of interest are common in tax resolution, particularly when dealing with married couples or business partners. A typical example involves a couple whose spouse owes a significant amount to the IRS while the other has sufficient withholding to cover their liability. This can create a conflict, especially in divorce situations or where assets are shared. The AICPA emphasizes objectivity and independence in these cases, requiring CPAs to disclose any potential conflicts to all parties. In some cases, stepping away may be necessary to avoid compromising independence. 

Clients also are tempted to suggest moving assets to a spouse’s name to avoid IRS scrutiny. One client, for instance, considered selling property and depositing the proceeds in a spouse’s account to avoid reporting it in an offer in compromise. This is a classic case of fraudulent conveyance, and it is the CPA’s duty to explain the severe penalties involved. Upholding due care means understanding these legal ramifications and guiding clients away from potentially harmful actions. 

Transparency and confidentiality: balancing ethical priorities 

Transparency is critical in tax resolution. Clients must understand their options and the potential outcomes of different strategies. Whether negotiating an OIC or setting up a payment plan, CPAs must ensure clients are presented with a realistic picture of what the IRS will likely accept. At the same time, protecting client confidentiality is essential. CPAs with access to sensitive financial information are ethically bound to maintain confidentiality unless disclosure is required by law. 

In one case, a client revealed they had an unreported gold bar and wished to exclude it from IRS submissions. The CPA refused to assist despite the client’s insistence, knowing that concealing assets violates ethical standards. Assisting clients in submitting inaccurate financial information undermines the profession’s integrity and carries severe legal consequences. 

AICPA guidelines and their practical application 

The AICPA’s Code of Professional Conduct is built on six principles: responsibilities, public interest, integrity, objectivity and independence, due care, and scope and nature of services. While these principles apply broadly across the profession, tax resolution requires nuanced application. 

For example, due care requires CPAs to stay informed about IRS regulations and navigate complex tax laws effectively. When advising clients on whether to file jointly or separately for back taxes, CPAs must weigh the impact on both parties, especially in divorce scenarios or where significant assets are involved. Ensuring objectivity in these cases is crucial for providing unbiased advice. 

The long-term benefits of ethical decision-making

Ethical missteps in tax resolution can have far-reaching consequences. Violations of IRS rules or involvement in fraudulent schemes can result in fines, loss of licensure, or even criminal charges. More importantly, ethical breaches damage the trust that clients, the IRS and the public place in CPAs. 

Adhering to ethical standards fosters trust and builds long-term client relationships. Strong reputations with clients and IRS agents often lead to smoother negotiations and better outcomes. Upholding these standards is essential for sustaining a successful, reputable practice. In tax resolution, where the intersection of ethics and advocacy is particularly challenging, CPAs must remain committed to the AICPA’s Code of Professional Conduct. By balancing transparency, managing conflicts of interest, and maintaining the highest standards of integrity, CPAs can help clients resolve tax issues ethically and effectively, safeguarding their own reputations and public trust in the profession. 

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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