Analyzing Accounting and Taxation

¶ … Taxation Accounting:

Criminal fraud vs. Civil fraud and taxation of U.S. businesses operating abroad

Tax and Tax Code reforms

When a client's accounts were appraised by the IRS, it was discovered that an omission of $100,000 had occurred. Upon such discovery, the first step is to investigate the taxpayer individually so as to collect historic reports of the individual; whether he had engaged in any non-compliance of this sort earlier or this is his first time. To determine whether a criminal prosecution is appropriate, a proof that the misconduct was carried out without an acceptable reason is required (CRIMINAL INVESTIGATIONS AND PROSECUTIONS OF TAX FRAUD CASES GUIDELINES). The following conditions must be kept in view when deciding whether a case can be prosecuted or not:

The validity of the proof of the fraud, the sources and contents used to produce a judgment.

The willingness of the prosecutor to carry on the case.

The above given factors are used to differentiate a civil fraud case from a criminal one. Laws have been formed laying out extensive limits regarding the ability to defer income in order to encourage competition between foreign and local firms. One of the laws is to limit the availability of deferral for active business income that is financed locally only (Subpart F) (Gale, 2002).

Under the U.S. taxation system, there are different tax treatments for domestic and foreign income and so firms can shift income to low-jurisdictions and deductions to high-tax jurisdictions. A tax which is generally considered to be the most popular is the flat tax, a value added tax with two parts. According to Gale (2002), non-wage value added income would be taxed at firm level and on household level wages. However, there are differences between a VAT and flat tax:

The VAT is imposed when pension contributions are made as opposed to a flat tax, which is imposed when pension is consumed.

The VAT is considered to be destination-centred as opposed to the flat tax, which is origin-centred

However, the most important thing about the flat tax is that it's divided in two parts and also acts as a consumption tax.

Case 2

There are several down-sides of the tax code system: it is unfair and chooses winners and losers unfairly; it is biased against saving and investment; and the tax imposition by the tax code is way too high. These influence families negatively as they discourage the members from working or investing their money in businesses. Without these activities, economic growth lags behind and there is no progress in the country. Therefore, I believe that reforms in tax code system are required.

Changes should also be made to business tax as suggested by Dubay (2014). Lowering corporate tax rate is not enough, and more action should be taken to increase economic growth. Lowering tax rate increases investment; however, it ignores the need of shifting to territorial tax system in which only income earned nationally is taxed. And thus, measures should be taken to remove the burden which discourages investment. Businesses should be permitted to treat their capital expenses fairly and completely by deducting them when incurred rather than using the elaborate method of depreciation.