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Understanding the Psychology Behind a Tax Return

Tuesday, 26 March 2013   (0 Comments)
Posted by: Author: Erich Bell
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Source: Erich Bell

The reliance that tax practitioners place on questionable information provided by clients is a heavily debated topic of recent times. Some researchers would even go so far to describe the issue as the most significant ethical issue in tax practice.

With the 1 July 2013 deadline looming for registration of tax practitioners with controlling bodies, tax practitioners must become introspective and ask:

•What information am I willing to rely on?
•Where am I going to draw the line when it comes to the verification of facts, not to mention questionable facts?
•Regarding the complaints that could be lodged to a controlling body by SARS, what could be done to mitigate my exposure to personal liability?

Researcher William Shafer (2001) investigated the issue of questionable tax records and information relied upon in a tax practice. Shafer made use of the general model of trust and suspicion proposed by Kee and Knox (1970) in an attempt to shed some light on this topic. The study investigated the reliance that US CPA tax practitioners place on information supplied by untrustworthy clients who have incentives to provide inaccurate and incomplete information.The model proposes that the reliance a tax practitioner places on questionable data is influenced by the trust he has in the client.

Practical example: Behavioural vs. Subjective Trust 

The model could be best illustrated by making use of two individuals throughout the discussion: Assume the tax practitioner is Peter, and Tonia, the client. 

Trust can be divided into behavioural trust and subjective trust. Behavioural trust refers to the manifest act of trust which would decline if Peter believes that Tonia is not trustworthy anymore. Subjective trust refers to Peter’s assessment of the probability that Tonia will be trustworthy which will be influenced by structural and situational variables, dispositional factors as well as previous experiences with both Tonia and other taxpayers.

Structural and situational variables propose that the relevant powers of the two parties, Peter and Tonia,would influence Peter’s decision to trust Tonia. For example, if Peter has just established his private practice, and Tonia is the Chief Executive of a listed company, then Peter would be more likely to trust the information supplied by Tonia. Dispositional factors simply imply that different people have different tendencies to trust others.

Impact of previous experiences

Previous experiences must be divided into personalised trust and generalised trust. Personalised trust refers to the trust that is developed through the interaction between Peter and Tonia through time, whilst generalised trust refers to Peter’s general level of trust in people.

The crux of the whole model is as follow: Peter’s structural and situational variables, dispositional factors and previous experiences, would determine the perception that Peter has of Tonia, that in turn would determine Peter’s assessment of the probability that Tonia would be trustworthy (subjective trust). This assessment would then ultimately determine Peter’s behavioural trust, therefore, if Peter is going to trust the information provided by Tonia.

Lessons learned from the research study by Shafer

Shafer’s research study yielded interesting results. It was found that tax practitioners would be more willing to rely on questionable data provided by clients whose information has been reliable in the past. This finding is consistent with the general model of trust and suspicion. Once behavioural trust is exercised, it would remain at a set level until the trust is broken down by a mistrustful act. One could probably argue that such an act could take place when the practitioner becomes aware of the fact that unreliable information was supplied to him. The practitioner’s behavioural trust in the client would then decline, which in turn may result in the practitioner questioning the reliability of the information supplied by the client in subsequent engagements.

The study also found that tax practitioners who are less risk averse concerning tax would also tend to rely on questionable data provided by their clients.

A significant finding was that a tax practitioner’s generalised trust has no influence on client reliance decisions.

Lessons for South African tax practitioners

Shafer asserts that although the model can be applied to both auditors and tax practitioners, these parties are likely to differ when it comes to their willingness to trust clients. Auditors have an inherit duty to question management assertions, while, on the current state of affairs, tax practitioners primarily serve as duty bound to their clients’ interests as tax consultants. This situation is, however, bound to change once the regulation of tax practitioners takes effect on 1 July. As from 1 July 2013, tax practitioners would no longer be able to hide behind their clients. They would be required to climb out of the closet and accept responsibility for the advice they give to their clients. Tax practitioners will be held accountable for the tax advice provided and the tax returns submitted to SARS.

Section 241 of the Tax Administration Act (TAA) grants a senior SARS official the power to lodge a complaint with the tax practitioner’s controlling body (such as the South African Institute of Tax Practitioners) if, due to negligence, the practitioner did anything or omitted to do something that resulted in his client avoiding or postponing the payment of tax. A complaint may also be lodged if the practitioner’s action contravenes a rule or the code of conduct of the profession.

The South African Taxation Standard 3000.05, currently under review and soon to be withdrawn and replaced by a new tax due diligence review standard, allows a tax practitioner to rely on information supplied by a client without verification when submitting a return. The applicable provisions in the standard that will remain relevant, places a duty on tax practitioners to make enquiries if the information supplied to them appears to be incomplete, incorrect or inconsistent either on its face or on the basis of other facts known. The word "appears” suggests that the tax practitioner would be required to make value judgements on the reliability of the information provided by the client. A tax practitioner must therefore obtain sufficient knowledge of his/her client to determine whether there is sufficient behavioural trust to rely on the information provided by the client.

Furthermore, section 241(2)(a) of the TAA specifically requires tax practitioners to practice with the required diligence when providing tax professional services for a fee. This invariably implies that tax practitioners would be required to evaluate, to some extent, the accuracy of the information provided by the client. Although the professional work performed will not be a due diligence per se, the tax practitioner may be required to prove, when questioned, that reasonable steps were taken in ensuring that the information received from the client is accurate.

One can probably argue that this section would be to the advantage of both the tax practitioner and the client. From the practitioner’s side, performing a due diligence would, to an extent, mitigate his professional risk in terms of giving advice or submitting a return based on incorrect, false or misleading information. By questioning the reliability of information, one can assert that the tax practitioner has done what would have been done by a "reasonable man” in ensuring that the client does not avoid or postpone any obligation imposed in terms of the tax act. This would cause the practitioner to fall outside the scope of section 241(1)(b)and 241(2)(a) due to the fact that he did not act with negligence. 

The client would also obtain peace of mind from the professional work by receiving a level of comfort that the information supplied in his tax return does not contain any obvious or noticeable errors.


To avoid a complaint being lodged with a controlling body, a tax practitioner has to understand the client, including his/her integrity and position with regards to compliance. In addition, all tax services provided to a client must be subjected to some due diligence before submitting a return or providing tax advice. The South African Taxation Standards issued by the SAIT requires a tax practitioner to use his/her professional judgement when considering or relying on information provided by a client. Consistent with Shafer’s recommendations, SAIT is in the process of modifying its professional standards to achieve greater clarity and certainty with regard to the responsibility of tax practitioners in this regard.

Therefore in order to avoid an attack under section 241 of the TAA, tax practitioners should certainly apply their professional judgment. 



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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