Question

You are negotiating a transaction on behalf of one of your clients, Blair Burke. During the negotiation you become aware that the other party to the transaction does not adequately understand the tax consequences of the proposed transaction, which are highly favorable to Burke. In fact, if the transaction were completed as proposed, the other side would suffer significant negative tax consequences. Ethically, should you inform the other party of the potential negative tax consequences of the proposed transaction?

Answer 1

The situation is a classical example of an ethical dilemma where in you are faced between favoring your client and the other party's lack of knowledge of the tax consequences. It is a conflict between duty and responsibility of confidentially for the client and morality. In this case, there is no right thing to do. Not informing the other party of the potential negative tax consequences of the proposed transaction is also correct since it their burden to be aware of the regulations and you are only working on behalf of your client. The other side of the argument is being morally right, i.e. to inform the other party of the consequences since they are ignorant of the consequences.