Tax Evasion: A Serious Crime With Serious Consequences - Essay Sample

Introduction

Tax evasion is considered a specialized fraud by the IRS and is committed when a person or an organization gives the wrong information on purpose about their tax return to reduce the amount of tax they would be liable to. In most countries, tax evasion is a grave offense and would lead to heavy fining, prison sentencing or both. There are several forms of tax evasion fraud with the common one being underreporting one's income on purpose. How does this work? On might have several forms of payment in their line of work, checks, credit and even in cash. Well, because the first two would be easy to trail, they would not have a problem with stating those as sources of income. However, since payments made in cash would not be easily traced, most individuals and business entities would not include those as income.

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Concealing of assets is also another form of fraud whereby an individual fails to include other income sources or properties to avoid paying taxes to the IRS on the interests they earn from those sources. Filling tax returns is a legal requirement (Ballas, & Tsoukas., 1998). With the professionalism, Ralph holds he should not hold back on the information since he knows of the penalties that would ensue when the fraud is discovered. He would be liable for the offense since he is Lisa's CPA. His office is in charge of the tax filing and it would make a weak argument to pin the blame on Lisa might the IRS defraud such activities.

Following the Generally Accepted Accounting Principle would be of great help in this case since Ralph is certified. The principle of Materiality that binds the accountants to the relaying of all information from the financial reports without any compromise even if it is beneficial to other parties. These principles would be resourceful in such cases to avoid further cover-ups when the need arises which might incur further penalties.

It would be advisable for Ralph to withdraw from the engagement but not without further discussion. Why? Lisa being the CEO of the firm not is fully aware of the consequences that befall those who try to evade taxes. The knowledge that Ralph has might be of help in shedding the light on the matter and how to go about it. Without not, they both would be risking serving time and heavy penalties (Clotfelter, 1983). Lisa may be hiding other income sources that Ralph might not be aware of yet and maybe with the discussion they might find a solution. In a case where Lisa would still be defiant and not ready to comply, Ralph should feel free to withdraw from the engagement without further discussion. He must not be part of the fraudulent activity going on in the firm with or without his knowledge.

Telling Lisa to report the foreign trust must be the first thing he should think of. Since the provision of consultation is one of his duties, he should be free to tell Lisa just in case she might be hiding other related income. This will surely save the firm from heavy fines and court proceedings that may end up tarnishing its name, which is not good for business. If after all his efforts have deemed futile and he still feels like he does not want to be part of the fraudulent exercise, Ralph should report the incident anonymously to the IRS. Though IRS would need a whole ton of information from him, it would be the best this to do. This would also earn him a minimum of thirty percent of the additional tax, penalties and all other amounts that the IRS would be able to collect.

Forensic Investigation

Investigating a fraud might not be an easy task, especially when one does not have enough information on what they are looking for. Therefore it would require patience and a lot of resources to do. In most cases, forensic accountants use the fraud theory approach which requires the examiner to come up with a theory of how thinks the act of fraud might have been executed basing his hypothesis on the facts already known to him.

There are four major steps to follow in cases of investigating fraud. The first one being the creation of a hypothesis as earlier said. The forensic accountant must start with creating a picture of what might have ensued keeping in mind the facts that he already knows. Start with what you get what you do not know. The second step would be analyzing the data one already has filled up blanks in the hypothetical scenario created. This will erase some questions that were already there at the beginning of the investigation (Clotfelter, 1983). Lastly, the forensic accountant should be able to refine the theory with already existing information until a reasonable conclusion is arrived at. More information will reveal them either from digital forensics or personal investigators and this would conclude the theory thus answering all the questions the theory had earlier.

The forensic accountant would eventually come to know of the house if it exists. If Julio knows the home line number to Jose's house which he lives in with his wife then there is a lot of digital information that the forensic accountant can get from the back transactions of Jose to a, but with patience and exhaustion of a lot of resources.

Generally Accepted Accountant Principles

Patrick must value the duplex apartment building at $1.2 million just like the other properties around the area. That would somewhat a bargain since their estate has on the less living unit but would still go for that price. Selling the house to the neighbor at $13 million would entirely go against the Generally Accepted Accounting Principles. To observe fairness and equality, all accountants use these principles as a leveling ground for proper and honest auditing. Going against them would be unprofessional and might incur legal charges might the Lot's management decides to file complaints on the breach of the conservation's easement regulation (Clotfelter, 1983). This might happen in case the buyer decides to turn it into a more dense development,

Patrick should follow the principles of Generally Accepted Accounting Principles to the latter starting with the principle of consistency. He should not divert from the already in use methods of valuing apartment in that area just because he got a better offer which would, in turn, destroy the lives of other tenants in the already existing apartment just because one of his neighbors had always fancied more space. He should comply with the same accounting methods that have always been used yearly.

The principle of prudence encourages accountants to minimize the overstatement of income or assets. Patrick's idea to sell the apartment at an overprice compared to the usual prices that have always been used goes against this rule both for him and the buyer. They should be honest with the correct value of the apartment and sell it at the same. When selling the apartment at the correct value, Patrick should be wise enough to include all the information concerning the apartment including the fact that it has one unit less. This would go in line with the principle of the materiality of the Generally Accepted Accounting Principles.

Dispute Resolution

Many people would prefer Alternative Dispute Resolution to litigation since it gives room for understanding without the strict confinement of the law. When one is aggravated, they might want to take on the litigation process and the law takes its course. But in a case where there has been a good relationship between parties in dispute then there can be other ways of solving issues without getting the laws involved. These may include Arbitration, Negotiation, Mediation, and adjudication. This is only possible when the parties have had a mutual understanding to take that route.

Litigation involves going to court and letting the case be decided by jurisdiction and this may be costly to either party. It means most contracts signed under confidentiality would come out in the open and this is not friendly to businesses since they prefer discreteness. From Williams's point of view, she would be tempted to go for the litigation process. According to Aljaaidi, Manaf, & Karlinsky. (2011), contracts between the parties states clearly that due to the complex process of the fabricating of slabs, there were likely to be cases of mishaps. That, therefore, being the case, the purchaser should take the responsibility of checking the quality of the slabs on purchase. With this clearly stated on the contract, William would stand a chance in litigation since she complied with all the requirements of the contract.

Dunn should not go the litigation way simply because the contract does not favor his argument. It was upon him to check the condition of the slabs before using them for construction and take them back in case they were faulty or demand a refund. It would be advisable for him to seek Alternative Dispute Resolutions. This would give him a chance to explain in the case and maybe throw in negations for cost-cutting.

Conclusion

Adjudication would be the most form of ADR for both parties since it deals with construction contracts. It is an entirely formal process with the involvement of a written letter notifying the adjudicator of the adjudication entailing brief details of the dispute. The final decision in these cases is to be expected within the first four weeks of the referral notice. The decision is considered final and binding.

Reference

Aljaaidi, Y., Manaf, A., & Karlinsky, S. (2011). Tax evasion as a crime: A survey of perception in Yemen. International Journal of Business and Management, 6(9), 190-201.

Ballas, A., & Tsoukas, H. (1998). Consequences of distrust: The vicious circle of tax evasion in Greece. Journal of Accounting, Ethics and Public Policy, 1(4), 572-596.

Clotfelter, T. (1983). Tax evasion and tax rates: An analysis of individual returns. The Review of Economics and Statistics, 65(3), 363-373.