What makes tax lawyers morally limited?

I find the psychology of professional ethics endlessly fascinating. Take this piece by Elaine Doyle, Jane Frecknall Hughes and Barbara Summers (2013) An Empirical Analysis of the Ethical Reasoning of Tax Practitioners, J Bus Ethics (2013) 114:325–339 DOI 10.1007/s10551-012-1347-x (open access here), which I thank Iain Campbell for mentioning to me.  The researchers used Rest’s original Defining Issues Test (and a tax specific version) to compare the moral reasoning of Irish tax practitioners and a control group of non-tax specialists.

They find that:

(i) tax practitioners generally reason at lower levels in tax contexts than in social scenarios (i.e. they can be moral, just not in tax situations);

(ii) that the professions do not appear to attract people who reason at lower levels (i.e. tax does not, on the evidence here, attract bad apples); and

(iii) that practitioners appear to be affected by training/socialization in their professional context (in particular tax practitioners in private practice demonstrate lower levels of moral reasoning than practitioners working for the Irish revenue service).

 The research is based on Rest’s well known six stages of moral reasoning:

1. The morality of obedience: do what you are told

2. The morality of instrumental egoism and simple exchange: let’s make a deal

3. The morality of interpersonal concordance: be considerate, nice and kind: you’ll make friends

4. The morality of law and duty to the social order: everyone in society is obligated to and protected by the law

5. The morality of consensus-building procedures: you are obligated by the arrangements that are agreed to by due process procedures

6. The morality of non-arbitrary social cooperation: morality is defined by how rational and impartial people would ideally organize cooperation.

The higher up the scale, the higher the level of moral reasoning that is applied by the subject of the test.  On a quick read of the paper the authors seem particularly concerned with accountants (who we are told to expect may already be prone to, “a lower level of moral reasoning than would be expected, given their age and education” based on other research).  Similarly, “auditors and accounting students… [appear to] apply a more principled level of reasoning to resolve social dilemmas than to resolve moral dilemmas in accounting or auditing.”  However, their study is on tax practitioners and this its seems may include lawyers, accountants and possibly others.

…The research instrument was administered to 384 tax practitioners and 306 non-specialists in Ireland in 2009 using a combination of random, convenience, and snowball sampling techniques.

What did they find?

The fact that tax practitioners do not reason significantly differently from non-specialists in the social context sug­gests that individuals whose reasoning is less principled than the norm (as measured by the non-specialist control group) are not self-selecting into the tax profession. …Once the context changed to tax, however, differences in moral reasoning were evident, with tax practitioners utilizing significantly lower level moral reasoning than non-specialists who remained con­sistent in their reasoning across both contexts. This dif­ference was substantial in size, with the level of principled moral reasoning being 34 % higher in non-specialists.

An interesting question is whether we (or they) should care.  Are tax practitioners more prone to a a kind of lazy positivism: a client friendly convenient roolz is roolz approach may fit with the architecture of tax law:

This may be driven by the weight tax practitioners give to legal rules in the tax context, of which non-specialists are unaware, but further analysis is needed before any such conclusions could be reached.

The interesting thing is that Revenue practitioners, who are operating in the same legal architecture after all, are rather different:

… Revenue practitioners show a pattern of reasoning that is very similar to non-specialists and their reasoning is not at a significantly different level in either the social or tax contexts. On the basis that Revenue practitioners fulfill a public service role with an emphasis on collecting the maximum tax revenue in accordance with legislation, in order to fund government spending and support society as a whole, this finding is, perhaps, not surprising. The fact that Revenue practitioners reason dif­ferently from private sector practitioners, however, indi­cates that tax knowledge and experience are not what is driving the difference between reasoning in the social and tax contexts for practitioners, as Revenue practitioners also possess tax knowledge and years of experience working in tax. Equally, moving from a social context to a work-related context is not driving the difference, as tax is also the working domain for Revenue practitioners. The results suggest that the differences observed in the reasoning of tax practitioners in the tax domain arise only in a private practice environment. While the results do not identify the reasons for the differences in moral reasoning in a private tax practice domain, the differences found may be due to a socialization effect in private sector tax practice.

A more pithy way of putting this might be that private practitioners in tax become morally inhibited because it pays or because their ethical rules demand that they prioritise the client’s interests over others (that’s not the case in this country but it may be the case in Ireland).  The fascinating question posed by the study (but not answered) is what if anything might be done to redress the problem (if indeed, it is a problem).  To boil it down unfairly: do tax practitioners need training to be more principled or should they be more tightly proscribed by rules?

Finally, if one likes a joke at accountants and tax practitioners’ expense (we’re only human after all), then there’s this little nugget on which I will conclude.  You’ll remember accountants generally scored poorly on moral reasoning in work contexts, well tax practitioners it seems are worse:

……the scores from this study are most comparable with those of average senior high stu­dents and are well below the level of adults in general and college students. These scores are also much lower than the average P scores of accountants found in other studies …

If the study is right, it seems its not the law, but the cultures and rules of private practice that might be dumbing down tax practitioners of Ireland.  Couldn’t be happening here, could it?



12 thoughts on “What makes tax lawyers morally limited?

  1. Interesting article, thanks for writing it.

    Speaking as a tax practitioner, the big thing I get from this is that the paper is begging the question: it assumes that tax practitioners *ought* to be acting morally when looking at tax questions.

    An alternative view would be that tax practitioners are in the habit of stripping the moral side out of what they do, because at the end of the day they’re advising someone else and it’s that other person who is responsible for deciding moral questions (which, after all, relate to their money and their obligations).

    That is, it may not be so much that they “prioritise the client’s interests over others”, so much as try to be impartial and leave it to the client to decide.

    I’d be quite fed up if, for example, my doctor told me to give up drinking because strong drink is a mocker and sobriety is a virtue. Telling me it’s having a bad effect on my liver is one thing, but getting ethical about it would be inappropriate.

    1. Andrew,

      Many thanks for elegantly stating the classic defence of amoral lawyer ethics. It’s true up to a point but it is also a convenient simplification which I think avoids facing up to the existence of real ethical choices that lawyers make when advising (deciding if something is ‘reasonably arguable’ for instance but also when acting and deciding on what basis they can advise). If you look more closely at the study, they give an example of one of the problems they asked the respondents to answer which might give you greater pause for thought. Here’s the example problem:

      “Anne is a tax practitioner with an accounting firm. She is working on a capital allowances claim to benefit one of her firm’s corporate clients that is in financial distress. Despite profitable trading, the client has suffered severe cashflow problems as a result of adverse economic conditions. The capital allowances claim relates to a new factory building and will significantly reduce taxable corporate profits (and thus the tax the client has to pay). To be eligible for capital allowances, the factory has to be in use at the end of the client’s financial year. Without the reduction in tax from the capital allowances, it is unlikely that the company will survive, which will result in 5,000 employees losing their
      jobs. It is now a month since the client’s financial year end and Anne has asked the financial controller for documentary evidence that the factory was in use at the end
      of the financial year. The financial controller sends her a copy of the minutes of the latest directors’ board meeting. The last item on the board minutes notes that the factory premises became fully operational on the last day of the financial year. However, Anne is convinced that this was not the case as she drives past the factory every evening and it is clearly unoccupied. However, she also knows that the company will not survive if the capital allowances cannot be claimed. Should Anne file a tax return claiming capital allowances for the financial year?”

      I guess my question is, can/should a tax adviser acting professionally answer that question without ethical principles being relevant?

      The point of the article (for me) is that sometimes (often?) professionals are expected to advise or act on a professionally principled basis and this article suggests that the tax practitioners are less able to do so if a) they are dealing with a tax problem and b) if they are working in private practice. I think there is a difference between letting one’s personal morals intervene (as per your doctors example) and behaving in a professionally principled manner. Understandably comforting arguments that we ‘don’t do morals’ in the way that Alistair Campbell said Tony Blair didn’t do God, should be laid aside as a red herring. Doing morality in the way you mean is not the issue here (for me): being professional is the issue.

      1. But this is the classic dilemma for a lawyer – “I don’t believe you”. In this case the problem is sharpened by suggesting that a tax advisor is able to assess whether a factory:
        a) is occupied
        b) needs to display signs of occupation to be operational (ever driven past a computer chip facility?)

        However, the issue is the same as usual: are you obliged to take your client’s word for it? The answer is no – you are obliged to test your client’s account. So the question is unduly binary – it should be “Should Anne go with her own convictions or share them with her client and invite them to comment?” The answer is pretty clearly that she should not reach a decision based on some drive pasts, which she does doesn’t then ask her client about.

        More interesting is what she should do if she is unconvinced by her client’s answer. That can be abstracted to “Is it ethical to judge your client’s veracity on the basis of your own non-expert opinion”. The answers will differ from case to case.

        My concern about this study is that it assumes that professionals going off on a frolic of their own is ‘moral’. That path leads to “you’re horrible so you don’t deserve representation”. One swinging body later and talk of morality sounds more like self-righteousness. That is a debate we need to have – perhaps before studies that don’t state, but do assume, the answer.

  2. I find this all very confusing… especially when I tried thinking about this in the context of an issue at work where there are two outcomes depending on the actual facts:

    1. Individual pays no tax today but if they are ‘lucky’ and something goes really well they will make a large amount of money in a few years time and then pay a very low rate of tax (i.e. win-win for the individual).


    2. Pay a very large amount of tax today. And then pay some more tax if things go well in the future. But get no practical relief for the tax paid upfront if things go bad (i.e. lose-lose for the individual).

    Now I find that is a weird situation. I can understand paying no tax now / lots of tax when you realise a gain. I can also understand paying some tax now and then less tax when you realise the gain because of the risk you’ve taken in paying tax up front. But win-win v lose-lose ‘feels’ wrong. But is that feel based on my knowledge of the law and how it normally applies? Or is it based on my concept of fairness? Or morality? Or something else?

    Let’s say my ‘moral’ tax view recognises that this position is not right. But I have to put that aside and go to what the legislation says. I can’t choose the moral way of taxing.

    But I have to take the view as to whether the facts are likely to be within in (1 – no tax now) or (2 – lots of tax now). There is no satisfactory alternative. Obviously the individual’s adviser is doing his best to say he is in (1). But to do that, he has to squint at the facts more than I am willing to. There is no morality in that though. I have to apply the tests and decide whether I am in (1) or (2). And on reflection I decide the facts are (in my mind) clearly in (2 – lots of tax).

    The individual’s adviser then comes up with an argument that they are within (1 – no tax now). I think that those arguments are weak technically (and not from a moral perspective) but I am concerned that if I don’t agree with him then the deal won’t go ahead because the individual could not afford to pay the tax under (2). So how does morality come in to that decision? Morally, I think the individual shouldn’t pay the tax now. But the law says my ‘morality’ is, arguably, wrong.

    As an aside, when I went to Parliament to watch the legislation go through I remember thinking that the MPs in Committee were not thinking about the law, or the morality behind it, just how to get a good sound bite or how to jeer at the right time. In 2011 when I went to watch something else, the MPs deliberately talked about petrol and how many characters you can have in a tweet so as to waste time and not talk about the new law.

    Anyway, the other adviser is doing his job. He’s trying to create arguments that (I think are weak) that means that he’s in (1 – no tax now). Is he just trying to apply the law? Is he trying to creatively interpret the law since it fits with his moral interpretation that it is wrong to pay a lot of tax today when there is no real gain?

    I don’t know the result yet, but we are going to see a QC to guess whether I am right (in the legal sense) or not.

    Putting myself in the shoes of the tax inspector who may look at it in a few years time. They will see the outcome when the tax return goes in and may well look at the economics with hindsight. They are not presented with choices and different shades of facts and so they can afford to take a more moralistic view of how the tax rules should apply. And while I regularly work with HMRC specialists who know the legislation inside out and apply it (in my mind) properly. I also know many people at HMRC who do not know the legislation at all and apply things by gut feel. And others who starting point is “it should be taxed, now what are the facts?”. So maybe their need to differentiate the subtleties between morals and law are less refined?

    So from my perspective, this is all too complicated. But I would say that my guess is that the tools that the researchers are using are not nuanced enough. For me, tax should have quite a high degree of fairness in it (is that morality?). But often I have to override that and just take account of what the law says, even though I think it is morally wrong.

    As another aside I bet I could find a control group where the difference would be greater than 34% though. Find a group of rugby referees and see how contextual judgement / materiality comes into the way that they apply their laws. Rugby has very strict and tightly defined laws. But rugby referees can (nearly always) override them if it is the right thing to do. That’s the opposite of what I can do as a tax adviser where the minutia actually matters.

    Anyway, I’ve rambled on too much…

  3. Andrew, that’s an interesting point from which to comment. I think it’s aguable that a position that says there are no moral considerations, which are instead passed to clients, is, in itself, a moral position.
    But there are also considerations arising from membership of a professional body with Codes of Conduct. I believe these include not suggesting actions that are not legal, or that bring the profession into disrepute. And lawyers would also have duties to the Courts.
    So, I assume that providing advice to a client is already restricted and affected by some moral/ethical considerations.
    I also found the analogy with the Doctor helpful. They are clearly bound to act in the best interests of their patient. But even so they face moral/ethical choices. I’m sure this is all covered in the training on medical ethics. But do they prescribe costly treatments if the patient will not assist, eg reducing weight or taking exercise? (Remember the George Best liver transplant debate?) Do they spend part of a cah limited GP budget on expensive drugs for a single patient at the expense of treating a lot more? Do tax professionals devise a structure that benefits a single client but deprives others of the intended benefits in a law that ends when the “loophole” is closed?
    I think there are moral issues. The profession may adopt the view they have to let the client decide but I think they need to recognise this is not necessarily a straightforward position.
    In some ways maybe public service allows professionals to focus on an abstract client, the State/Crown, and always think more in the general than in the particular? They do not usually have to worry in the same way as private sector professionals about fees.
    So maybe their life is less filled with moral hazards? The role of the private sector tax professional might be more complex.

    1. I think saying “there are no moral considerations” is rather over-stating the case: the paper as reported simply says that tax advisors are using “lower level moral reasoning” in tax contexts.

      I’ve not read the underlying paper properly, but I believe the methodology looks at the proportion of your reasoning which is at higher moral levels, so I suspect that you could get this result by scoring highly in some areas and low in others (ie the result is (crudely) an average). A result of 3 could be obtained for a piece of advice by operating at ” moral philosopher” level in regard to your own actions while staying completely out of the client’s decision in regard to theirs.

      An example might be where a client has been offered a planning scheme, if you simply contribute a technical analysis of the chances of success when asked to advise on whether it should be entered into, but you take pains to ensure that it is fully disclosed in the return you prepare and you donate the commission the promoter gives you to charity.

      It’s been 20 years since I studied any statistics, and I wasn’t very good at it then (I mainly studied psychology in order to get access to the philosophy faculty), so the analysis in the paper is beyond me. I do note however that there are a number of questions being asked in relation to each dilemma, relating to different aspects of the transaction. It seems to me (with my limited understanding of the methodology) that the ones which score higher on the morality scale may be the ones which are more distant from the case in point (unhelpfully the tax dilemma doesn’t indicate how these are ranked, although the medical one does). So when asked “how important” an issue is, I might think that a sweeping point of principle is very important in the grand scheme of things, which would get me a lot of points, but not when applied to a particular case. Saying a tax system with random definitions ought to be abandoned seems like quite an important and ethical issue to me, but it’s not at all relevant to a particular capital allowances claim so I’d flag that as “no importance”.

      I seem to be replying more to Richard here 🙂 but overall I think that yes, there are moral issues, but I’m not sure that the methodology of the paper would capture them properly. Although that could be an instinctive defensive reaction to belittle or dismiss a result I don’t like, of course 🙂

  4. Okay. My number of issues with this paper…

    The first thing is the Revenue control group. There is no visibility as to whether they are EOs in the districts who are as much tax professionals as a book keeper doing an income tax return is. If you want to compare an experienced tax professional to a PO, an AP (or even a HEO) in Large Cases or the Castle you’re comparing apples with apples, comparing them to an EO in a district compares apples with pears.

    The next thing is the entirely false dichotomy created by the question. Even if the tax adviser does not believe her client that the building was in use for one day, she is within time to change the year end and ensure that the building is in use for a period of time which ensures that the capital allowances are available. The purpose of the capital allowance regime is to give tax relief for capital expenditure incurred for the purposes of the trade in lieu of depreciation. Here the expenditure has been incurred and it is pro purposive that the relief should be available. Therefore any tax adviser worth their salt would advise to ensure that relief was available if that meant the saving of jobs. There is absolutely no ethical dilemma if the terms of the relief are met and since any tax professional can see that the terms may be met already (the client has said that they are), but certainly are capable of being solidly met, they will see the question for what it is – an attempt to create a false dichotomy based on ignorance of the tax law followed by incorrectly leading questions. The answers to all subsidiary questions will, to some extent, be tempered by a distaste for this attempt to create an artificial conflict, and could be answered in a glib manner because of this.

    But I would posit (anecdotally) that an alternative scenario should also have been tested. John Ltd, a sub-contractor in the construction industry, has €3k in collected but unremitted fiduciary taxes. John’s main principal contractor enters examinership and John is unlikely to see €0.05 in the €. John has employees Dave, Dee, Dozy, Beaky, Mick & Tich and his weekly wage bill is €3k. John decides that instead of paying Revenue he will pay his employees one last pay cheque. I strongly suspect (from experience) that many lay folk, and Revenue folk in the district would consider this acceptable. Indeed in a number of recent High Court cases taken by liquidators on the foot of instruction from the Office of the Director of Corporate Enforcement, the High Court have given this their blessing, see for example http://www.bailii.org/ie/cases/IEHC/2015/H2.html

    I know of no tax practitioners (or senior Revenue officials, or liquidators) who would consider this acceptable, not least because the State already guarantees statutory redundancy for the redundant employees of insolvent employers.

    To a tax practitioner the evasion line is clear and brilliant, less so to the lay person who may view evasion as a victimless crime if dressed in the right clothes. Yet the lay person somehow thinks that the avoidance or compliance line is equally clear when it is anything but since it rests on the judgement of professionals and ultimately of the courts.

    Anecdotally I suspect that there is something in the idea that working in larger firms socialises us to a more aggressive interpretation in favour of the best interests of our clients.

    Anecdotally I would hazard that the profession in Ireland is considerably less rigorous in terms of both standards and ethics than that in the UK, not least because the Irish regulatory bodies do not have guidelines on a par with their UK counter-parts. One only has to compare the Irish and UK ADIT International tax papers to see the gulf between standards being examined.

    But for any of this criticism of the profession to be proven it needs to be examined properly with clear examples and questions which are not designed to lead. The specialist control group needs to be directly comparable to the specialist group being examined. The ethics of lower scale non-compliance with the letter of the law also needs to form a part of any such paper.

    As is, I will rely more on the anecdotal evidence of my 15 years plus in the tax profession in London & Dublin, Big 4 and other way before I would place any faith in the conclusions of this flawed paper.

  5. Thanks Aisling. Very interesting. You might like to know their separate paper on big firms vs smaller firms suggests no difference in the reasoning approach of big or small firms at the level of individual practitioner but also suggests the decisions are structured differently. My instinct on aggressiveness was similar to yours, but I have heard different from other tax practitioners.

    I agree there’s an interesting question about how comparable the control group is. I wondered too if this might be something to do with the level of specialisation/level of expertise of the respondents.

    I’m not quite as confident as you are about the problem with the question(s) posed to the respondents. The test is after all interested in how they get to their answer not what the answer is and they are not offered your third way out of the problem (there may be a good reason for this that we do not yet know, but let’s assume not). It’s part of the artificiality of the DIT-type approach. So I’m inclined to be more forgiving than you are. Whilst, I still think you make a good point, I think you’re a bit over confident about the glib-reaction point: I’ve seen practitioners react this way but I’ve also seen the opposite, which is plenty of practitioners accept any artificiality in good faith and seek to reason it out either on a rules basis or a principles basis. Thus the test might still be quite a good one of ethical reasoning (of its type: doing something like the DIT involves compromises anyway). It’d be interesting to hear the researchers thoughts on this – lets hope they pop by….

  6. There are two quite serious problems with this paper; a failure to apply proper controls, and a leap to a conclusion that the paper itself doesn’t justify.

    First, given the authors are looking at the subjects’ moral/political outlook, it is hard to see why they didn’t control for political views. It is, for example, entirely plausible that those of a more Conservative disposition are more likely to become private sector tax advisers and those of a more Left-wing disposition more likely to become Revenue inspectors, with their political viewpoints flavouring the subjects’ views of morality as it pertains to tax. Indeed, such a problem could be exacerbated by selection bias, i.e. with those more politically inclined being more likely to respond.

    This could and should have been controlled for, and it reflects poorly on the referees that this point was not identified. The value of the paper is therefore very questionable.

    Second, the authors are reaching conclusions about tax practitioners without asking if they would have seen similar results if they had taken any group of lawyers who act for clients vs the State, and compared them with their counterparts working for the State. For example: criminal defence lawyers vs prosecutors; planning lawyers vs local authority planning counsel; etc.

    Overall I am left with the uncomfortable feeling that the paper is more an exercise in polemics than a real contribution to the understanding and development of the tax profession.

  7. The introduction of a poliitcal dimension is also interesting, although I can’t see the study equates or conflates moral outlooks with political outlooks. I didn’t find it an exercise in polemics but a piece of research that raises some questions and suggests that Institutes reflect on the training they provide.
    I’m not sure there is a simple and easily controllable defect here, that runs from political outlook to moral outlook. In fact, I would argue the flow is in the other direction – morality/ethics influences political beliefs. So, the poliitcal element may just be a further manifestation of this apparent difference in moral/ethical reasoning, although I would like to believe that overall political beliefs do not interfere with the reasoning and decision making of tax professionals. If it made any (significant) difference then I think that would in itself create a whole new series of questions on bias, fairness, and the like.
    Nor do I see how you can control for a political belief with any degree of certainty, or without affecting self-selection. How can it be done? Inviting participants to declare a party allegiance, or if they are ‘Right’ or ‘Left’, (or ‘Far Right’ , ‘Far Left’, ‘A plague on both your houses’…) does not seem very robust to me.
    I also agree with Richard that the authors can help by dropping in. It may be, for example, that in the literature to which they refer there are discussions on bias of many kinds and whether politics has been found to be/not be a substantive issue.

  8. The problem is how to distinguish correlation from causation. Let’s accept for the moment that the paper demonstrates that tax practitioners are more likely to have impaired moral judgment of tax questions than either laymen or tax inspectors. The paper assumes causation – i.e. the impaired moral judgment is caused by training/socialisation in their profession. But it is also plausible that the causation runs the other way around – that people with this particular set of moral views are more attracted to becoming tax practitioners. It’s also possible there is no causation at all, but rather another factor which affects both the decision to become a tax practitioner and the moral judgment on tax questions (social class being the most obvious candidate).

    It’s Stats 101 that correlation does not equal causation – and most surprising that the authors don’t acknowledge this and the referees didn’t pick it up.

    There are many more qualified than I am to suggest how this problem could be fixed. For what it’s worth, I have two suggestions.

    First, better controls. There is plenty in the literature showing a correlation between political views and moral judgments. Hence a simple improvement would be to ask the subjects which way they voted in a previous election (ideally one before they joined their profession). I rather expect one would find that the practitioners are rather more Right wing than the others; one would then adjust for this and see if the correlation the authors found still holds.

    There are other more robust approaches one could take. For example, if the authors’ hypothesis were correct then the degree of impaired moral judgment would increase during the course of a tax practitioners’ career. Does it? I expect they don’t have a large enough sample to check from their existing data. But if they could show that the correlation increases over time then that would go a long way to show causation.

  9. The talk about methodology got me thinking about this an issue. I wondered if there was any sort of methodological discussion on the sorts of questions raised above. I found the authors had actually set out the proposed methodology before they did the research. It seems to have been a fairly long and considerative process to come up with the questions and approach.

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