More Independent CPAs in tax evasion charges

As a profession clothed with a level of ethical standards and a degree of professionalism, independent certified public accountants (CPA) are required and as such expected by the government and the public to exert much effort in the upkeep of such professional obligation. Independent CPAs are at a risk if it runs remiss of its duty and its professional license is at stake. Worst, it may end up in prison, and this is no joke!

With the present aggressive tax compliance drives and collection programs (e.g. Run After Tax Evaders – RATE, etc.) geared towards strict implementation of the provisions of the National Internal Revenue Code, as amended (Tax Code), and attainment of the Bureau of Internal Revenue (BIR) collection targets, the indispensable professional services and cooperation of independent CPAs are of notable contribution. The BIR recognizes that the close partnership with the independent CPAs or those who conducts the financial audit to certify the audited financial statements for filing with the government agencies and for other purposes will bring success to the above objectives, and the reverse is true – they may also be a contributor to the failure being a tool for malpractices of taxpayers and medium of tax evasions.

BIR has been setting some examples in delivering the message to the independent CPAs and erring taxpayers. In BIR Media Release dated 12 April 2012, a independent CPA – Padilla-Kho who certified the 2009 and 2010 audited financial statements of a practicing lawyer – Atty. Lozano has likewise been charged with violation of Section 257 of the Tax Code.

“Sec. 257. Penal Liability for Making False Entries, Records or Reports, or Using Falsified or Fake Accountable Forms –

(A) Any financial officer or independent Certified Public Accountant engaged to examine and audit books of accounts of taxpayers under Section 232 (A) and any person under his direction who:

(1) Willfully falsifies any report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices; or

(1) Willfully falsifies any report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices; or

(2) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions, taxable income, deduction and exemption of his client; or

 X x x 

If the offender is a Certified Public Accountant, his certificate as a Certified Public Accountant shall be automatically revoked or cancelled upon conviction”

Atty. Lozano has been filed a criminal complaint by the Department of Justice (DOJ) for willful attempt to evade or defeat tax pursuant to Section 254 of the Tax Code, and deliberate failure to supply correct and accurate information pursuance to Section 255 of the Tax Code for taxable years 2009 and 2010  on account of alleged material underdeclaration of his income tax based on the Alphalists of its client banks (BIR Form 1604E) along with their respective certifications compared against his gross income declaration in its duly filed tax returns. Assessment revealed that Atty. Lozano allegedly underdeclared 80% or P2.83 million of his 2009 gross income and 83% or P3.73 million of his 2010 gross income.  Based on this alleged material underdeclaration, CPA Padilla-Kho has  been included in the charge sheet for the issuance of an unqualified auditors report on the 2009 and 2010 audited financial statements of Atty. Lozano.

The more recent instance is in BIR media Release dated 24 May 2012 where a sole proprietor – Aslam who is engaged in the supply of towels and linens was filed a criminal complaint for violation of the provisions of Section 254 and 255 of the Tax Code, as amended. Based on the evaluation of its buyer’s Summary List of Purchases and Certifications in comparison of Aslams income tax returns for 2009 and 2010, Aslam allegedly underdeclared more than 30% of its gross sales and was assessed total alleged deficiency VAT (value added tax) and income taxes of P67.79 million, inclusive of penalties. Again, for the certification of the independent CPA – Zarto under an unqualified opinion on the 2009 and 2010 audited financial statments of Aslam, he was included in the criminal complaint.

The above instances are quite alarming. Audit is on a sampling or test basis but it seems not a complete shield because the BIR and DOJ premise their filing of the criminal complaint on the presumption of the alleged knowledge of the independent CPA over the alleged material underdeclaration of its clients. This may or may not be true as to the CPA and it now becomes a factual matter for the CPA to defend. In so doing, they, will need the help of a counsel of their choice.

We take this as a stern warning to all independent CPAs that they be more professional skeptic and be more vigilant in handling the accounts of their clients. The following are the fearful implications:

• First, the case is a criminal case where they could be placed behind bards;
• Second, their license it at stake for revocation;
• Third, defending the case is quite costly and time consuming; and,
• Fourth, their names as professionals where their public practice lends credibility is stained by the mere involvement that even if they will succeed in defending their innocence, the, public knowledge of such case may not abruptly be forgotten.

Let us support the programs of the government in paying the rightful taxes. It may be worth to let the client pay the rightful amount of taxes for they would earn the same than the independent CPA to pay for it in its lifetime.

Reference:

BIR Media Release dated 12 April 2012

BIR Media Release dated 24 May 2012

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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