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The Jewish Ethicist: When Is It Cheating On Taxes

The Jewish Ethicist: When Is It Cheating On Taxes

How far is too far when it comes to reducing taxes?

by

The Jewish Ethicist is a joint project with the JCT Center for Business Ethics.

Q1. My brothers and I inherited a business from our father. They want to save taxes through a complex scheme involving an offshore tax haven. Is this ethical? MC, Canada

Q2. As a CPA, I encounter many people who ask me to be as creative as possible in helping them reduce their tax liability. They tell me that they pay too much in taxes already. Should I tell them that if I were truly creative I would be an artist or an actor and thus lose the client to an eager competitor, or may I interpret the law in a completely new light? WS, New York.

A. Your confusion is understandable. No less a genius than Albert Einstein is quoted as admitting that "The hardest thing to understand in the world is the income tax."

The basic distinction to be made is between "tax avoidance" and "tax evasion," between exploiting the law and flouting it. It’s okay to minimize taxes by taking advantage of legitimate provisions of the tax law, or even taking a reasonable position on an unresolved question of law. But we cross the line into tax evasion, which is a criminal activity, when there’s no sincere claim of lawfulness.

A good way for the average person to distinguish between a prudent plan to save money and an illegal and immoral scam - which may ultimately be extremely expensive - is to ask a reputable tax adviser. If this professional openly advises that you needn’t declare sheltered income, he or she probably believes your acts are solidly defensible. But an evasive answer such as "Nothing will happen to you if you don’t report," or "I know that many people employ these methods," is a sign of danger.

Another guide is the degree of secrecy called for. Watch out when ordinary, prudent discretion crosses the line into "cloak and dagger" activities like wiring small amounts repeatedly, moving cash or using way stations in moving money, etc.

An ordinary person can rely on a reputable accountant, but the accountants themselves can’t just pass the buck. They have to answer to a higher authority – not to mention the Higher Authority. Their obligation to know and conform to generally accepted accounting procedures is legal, ethical, and professional. An accountant who deviates from these principles can be prosecuted, is acting in a devious way, and violates the professional code of conduct of his or her professional association.

Of course an accountant, like a lawyer or a judge, may interpret the law in a completely new light – if the interpretation is professional and defensible. But it is unethical to make an audacious claim based on the hope that the tax authorities won’t notice.

I wouldn’t worry too much about your competition. Plenty of taxpayers are turned off by an accountant who likes to play games. The average person wants to be on the level, and also knows that an accountant who takes chances puts all of his or her clients in danger of audit.

SOURCES: Shulchan Aruch, Choshen Mishpat, 369:6; Shulchan Arukh HaRav, Laws of Theft, 15.

Send your queries about ethics in the workplace to jewishethicist@aish.com

The Jewish Ethicist presents some general principles of Jewish law. For specific questions and direct application, please consult a qualified Rabbi.

The Jewish Ethicist is a joint project of Aish.com and the Center for Business Ethics, Jerusalem College of Technology. To find out more about business ethics and Jewish values for the workplace, visit the JCT Center for Business Ethics website at www.besr.org.

JCT Center For Business Ethics

Copyright © JCT Center for Business Ethics.

Published: May 12, 2001


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Visitor Comments: 3

(3) Yedidya Weil, May 13, 2001 12:00 AM

Nice to see Judaism responding to important contemporary issues that are really import for many people

I think that the issues that are being dealt with in this series are very important and the articles have enlightened me about the Jewish view of these issues.
What I would really love to see is a series on the halachic and moral view of bio-ethics, what with human cloning around the corner etc.

(2) Anonymous, May 13, 2001 12:00 AM

Customer Service

As a tax preparer, I tell my clients up front that they are the ones responsible for what is reported on the return. I tell them that written eveidence is the best. I document what they tell me and the source.

Of course, the biggest abuses are charibtable contributions and the home office deduction.

As for the IRS, they will tell you that the taxpayer is ultimately repsonsible for what is reported on the return. That is why I like to review the return with the client before they mail it in.

(1) Anonymous, May 13, 2001 12:00 AM

we need more articles like this one.

we need more articles like this one.
ethics and morality are things we grew
up with; but adults in today's society
and business need clarification and
education in that new light.

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