I think my boss has been cheating on his taxes

I'm the controller of his company -- should I report him?


Cary Tennis
September 11, 2006 2:56PM (UTC)

Dear Cary,

My boss owns a successful business for which I have been the controller for the past three years.

A recent series of events raised some financial red flags, so I decided to review his personal and corporate tax returns for the past several years. I had reason to suspect that he may have been underreporting his personal income on his tax returns. After comparing information on the returns with the financial records, it appears that he has not paid personal income tax on almost $1.3 million of income he has received over the past four years. I have documentation to back this up, including bank statements, canceled checks and accounting records.

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Should I report this to the Internal Revenue Service? I've discussed this with one other person, who, rightly, pointed out my anger at my boss for having screwed me and other employees professionally for years. He has been selfish, greedy and shortsighted, and I would love to show him that he is not above the rules that apply to everyone else. Not to mention that I may be entitled to a portion of whatever the IRS recovers. But what I really want is to teach him a lesson -- that you can't screw people. That karma is real.

So, what will my karma be if I turn in my boss to the IRS? Will this affect my professional reputation? Will he just take it out on the people who are still with the company? I know I don't have control over him, so now that I know he has cheated the IRS, along with the rest of us, do I pretend I don't know and go along with my business, or do I report him to the IRS, knowing it may accomplish nothing except make him pay a lot of tax?

Trying to Reconcile the Truth

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Dear Trying to Reconcile,

Your letter contained many details about your personal dissatisfaction with the way your boss has run the company and with the way you personally have been treated. But I deleted most of that in order to focus on the essential question: What should you do about your boss's taxes? It doesn't matter whether you like your boss or not. You have a professional duty. The decision must be based on what your professional code of ethics requires you to do. I can tell you only this: Find out what your profession requires of you, and do it without fail. If you apply your code of ethics to your set of facts, I feel quite certain that the answer will be unambiguous. It may hinge in part on how you came to this knowledge -- whether in the course of your job duties or through some other means. Regardless, you must determine what you are required to do as an officer of your company and do it without fail.

That is all you need to do. In making this decision, it is not necessary to think about the effect of your actions on others, or about your motives for doing it, or whom it might harm. You may find yourself thinking of those things quite naturally. Your actions will undoubtedly have consequences, some foreseeable, some surprising. But your overriding responsibility is to take the proper action as defined by your professional code.

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The controller is the chief accountant of a business, responsible for making sure the funds of the company are handled in accordance with company policy and the law. There's not much wiggle room there. You have to do what your job and the law require.

Once you have done what you are required to do, of course, you may find you have a new and more complicated set of problems. I would be happy to entertain them at that time. But for now, there is only one simple question you must answer: What is your professional duty?

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If you are not sure what should guide you in your decision, you might start with the Code of Professional Conduct of the American Institute of Certified Public Accountants. Or if you think your conduct should be governed by some other professional organization, perhaps you should consult this list of accounting societies.

And if you find you cannot answer that question on your own by referring to your code of ethics, then consult with an attorney who specializes in accounting.

I'm sorry if it appears that I have thrown the question back at you. While I feel quite certain what your general approach must be, I have neither the facts nor the expertise to advise you as to particulars.

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Just do the right thing.

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