Corporate Taxation Law

Introduction

In the contemporary business environment, an honest business is obliged to act in accordance with the law. Among the numerous regulations and laws that an organization needs to fulfill are upholding business regulations, safeguarding employee rights, observing retirement arrangements, and following the labor or employment laws. The taxation law is a major regulation and has a depressing impact on the profitability of the organization in context. The objectives set forth by the executives of the organization have the best interests of the firm in mind, which comprise achieving financial gain as set out by revenue expectation boards. These goals are naturally complimented by secondary objectives such as rendering services to the target customers in the market, which is achievable only when the principal objective is achieved.

Business and Tax Laws

The amount of tax payable by a single business entity is not fixed as it applies to numerous points of operation and installments. Therefore, it is upon the management to make a reliable decision that can effectively control the functioning of a firm to effectively cut down on their taxes. The claim here stands that a management body can manage to dodge taxes legally and thus effectively manage an organization’s funds and profits. However, it is also sufficiently correct to mention that the evasion can be voluntary or involuntary (Desai & Dharmapala, 2009b). In the effort to prove the case, some of the crucial laws related to this topic shall be mentioned and briefly discussed after which some instances have been cited to support these claims. Further, principles behind the laws shall be derived making it clear how and why there exist misconceptions and distrust of these laws.

Tax laws that fit in this study’s context are principally based on the business’ ability to report their business revenues and profits, which is their financial status to the government. The tax payments are enforced at all government levels from local to the federal government. The tax is subject to the business type, the operations involved, and location among other factors. Additionally, a business is subject to taxes that are imposed on individuals for the profit of the government, for instance, the import taxes. The tax court is mandated to handle any disputes between the Internal Revenue Service (IRS) and taxpayers. The court is located in main cities and its decisions are appealable to Federal District courts of appeal and finally up to the Supreme Court.

Analyzing Corporate Tax Law

In business, managers are tasked with ensuring that the organization manages optimally without incurring any serious losses to market forces or taxes. The idea is to stop any financial surprises due to occur during business operations and significantly reduce the amount of money spent on taxes. The goal of fiscal accountability is achieved by being accountable and managing business operations.

Impactful law Principles

The corporate responsibilities that are intended for consideration while dealing with taxes    are: accountability, business transparency, stakeholder engagement, ethical responsibility, and coming up with tax strategies. Tax disputes between companies or against the IRC are sometimes dealt with through the law to reduce the tax burden. In a case of Westminster’s Duke vs. IRC, the judge stipulated that one has the right to sort themselves and their related entities to order that otherwise would reduce the tax intended for them (Likhovski, 2006). In other contexts, relevant shareholders and stakeholders maintain that it is not appropriate to regulate tax by just applying the law while considering their responsibilities as the corporate. Other conservative thoughts indicate that the CR should be used concerning the regulations of the law, especially making due what was intended by the policies (Kimmel, Weygandt, & Kieso, 2010). The latter are patriotic to the nation and maintain that affirmation to taxing policies counts as the operation cost of conducting business. Additionally, they believe that the tax collected is intended to develop the nation such that the society benefits equally. Therefore, they achieve an additional objective of community service (Desai & Dharmapala, 2009a).

In addition to company objectives, there are other factors that develop a code of conduct and strategizing. The most applicable in our case is the ethical code of business conduct. In the concept of taxation, elements such as openness, respect, and fairness among others are necessary while making decisions in an organization. Dealing with tax in an organization is tricky because the environment keeps on changing in quick successions. Stakeholder’s position, for instance, has changed from bystanders in respect to tax operation to active members who continuously seek out information relevant to taxing. The main concern is how the management came up with the tax accountability strategy and how they apply the strategy within the company. The strategic plan for taxation is the main route upon which one can gain access to information concerning the company’s approach, concerns, and attitude towards taxation. Additionally, they wish to understand how impacting the taxation is in regards to the society they operate in and the company’s mission and vision.

Complications in Taxing Laws

In respect to the above information, tax laws have been known to contrast each other such that cases have been advanced in the tax court creating situations where the judge’s discretion is the ultimate rule. In the US Code, 51 of Title 26, some statutes defining exempts from taxation for corporates have been stated and the exempts of such cited under codes 502 and 503 (Hopkins, 2011). As such organizations might favor policies that push them in favor of the statutes so as to avoid tax. As it is provided in the case of Westminster’s Duke vs. IRC, this is acceptable and legal in the systems of operations so long as the other expected codes are upheld such as accountability (Likhovski, 2006). The stakeholders are interested in such information that have a significant impact on an organization’s strategies and reputation.

One factor that makes it hard to keep up with the changes in the industries of business is frequent amendments subject to the evolving constitution. Additionally, changes in external factors available in the environment cause indirect changes in taxation laws and the methods of taxation. For instance, the introduction of the internet prompted the creation of the electronic tax payments techniques that have had significant impacts on businesses (Miller, 2001). An organization with limited access to the internet due to lack of an IT unit would have to incur an unprecedented cost of installation of one or to hire external elements. The cost of such an element would have to be balanced out with the financial and tax strategies thereby affecting the strategies of the entire company.

Law Case studies and Business Management

In order to understand the real impact of taxation laws and the possible strategies applicable in this context, some key examples have been discussed. The following are some cases that have been resolved for tax fraud or evasion. In the case between the IRS and the proprietor of a plumbing shop, the accused knew loopholes available in the business entities. The Proprietor took advantage of his corporation’s status and diverted his income to flow from the company expenses. As such, the individual was able to evade his income tax that he was ordered to clear as a restitution of over $130,000. The whistleblower’s expenses were covered by his company in the form of college fees and house expenses.

Secondly, he obtained some checks from his clients in his name rather than the company’s. These he did not include in his total earnings receipts since no record existed of the transaction or the payment. In the case of tax evasion, there are a number of elements that can be manipulated to ensure some tax is evaded. In this case, the company board of managers could have stepped in and avoided the destruction of the company’s reputation. If the board set up clear rules and procedures, senior officials would not have done such activities undetected. As such, the fraud would not have occurred and the company’s reputation would have remained intact.

Tax evasion in a corporate is principally committed by senior officials aiming to optimize profits for the company or to embezzle personally. The case of State vs. Illinois Tobacco store owner, the owner, was found to be at fault and even pledged guilty of tax evasion. He was charged with lack of accountability of company expenses and profits through reporting receipts. Ideally this would not be possible if the receipts were not in cash form. Otherwise, he did not deposit as much as ninety percent of the total to the company’s account and instead declared little. For this reason, accountability is highly recommended for the corporate in the public and private sectors of the economy. The funds not recorded by the company were used to support a high-end lifestyle in addition to filing misleading tax return reports in Illinois. As mentioned earlier, the board of managers should be in control of these decisions and shouldn’t allow any manual handling of funds.

In both of the cases discussed above, the management of the corporate is the causal problem of the misgivings that have befallen the two companies. Some cases have been brought into the Tax courts seeking to have a form of tax removed; this is by the law. For instance, in the case of Prairie Band Potawatomi Nation vs. Wagnon, the complainant sought to have a tax removed because of an article in Code 501 of Title 26 (Hopkins, 2011). However, the article specifically points to non-reservation nature of non-Indians, therefore, still sufficient for the transitive distribution of the fuel. After consecutive repeats, the Supreme Court held that the previously passed rulings were correct, and, therefore, the tax applied to the transit transport of the fuel.

Evidenced by the procedures mentioned in the above cases, there are loopholes in the corporate taxation laws, and thus tax evasion and compliance are common. Additionally, it is notable that the management decisions are the sole drive towards tax strategies for a corporation. In the mentioned cases, management has been held by different forms of entities resulting in different consequences. Tax evasion is a common phenomenon and in more times than not, the corporate can do so legally, thus avoiding repercussions from taxing agencies (Likhovski, 2006; Desai & Dharmapala, 2009a).

Distrust of Law and Misconceptions

In light of such cases, misconceptions about the severity of the taxing agencies or interest accrued from the late taxes form. Most of the times, the misconceptions are designed to a loose end of the taxation laws. For instance, the IRS allows extension of tax dates. This is commonly viewed as a leeway on which to extend personal payments because, ‘hopefully’, the amount remains constant. However, the interest of the taxes will continue accumulating along with related penalties. The amount payable to the IRS provides another area of controversy. Like many other government agencies, the IRS does not mind overpayments. However, underpayments are noted on sight, and the culprit is liable to penalties and payment of interest rate accumulations.

.A failure-to-file penalty does not take effect even if the tax is paid after the deadline. This is completely wrong given that the penalty is in force immediately the due date passes. Related to this is the failure-to-pay penalty which many people assume to be the same with the former. However, the former is stricter than the old and thus attracts a higher penalty. The idea is that one should be accountable at all levels, and acknowledgment of tax is the first step. Nowadays, it is much easier to remain accountable without incurring tedious expense of travel or postal services by using the online taxing services (Miller, 2001).

Following the analysis of the tax laws above, it is clear that mistrust would develop between the taxpayers and the taxing agency involved. Specifically, the ability of one managerial move to be interpreted into different meanings makes it hard to trust that justice will be served. Djankov, Ganser, McLiesh, Ramalho, and Shleifer (2008) in their research found that the corporate tax laws are substantial influencing agents in the operations done within an organization. The results indicate that these laws impacted the modeled businesses’ entrepreneurial and investment decision making as well as management. The results are not at all surprising given that they aligned to the fundamental theory of business.

Conclusion

The paper that is a clear thought that exposes the nature of taxation laws and the impacts it has on business decisions. The necessity of making clear and sound decisions governed by codes of professional business conduct has been explored. Additionally, the consequence of this has been laid out plainly. Sample cases have cemented the claim that corporate tax laws can be used as tools upon which a business’ performance and adherence to professional codes can be evaluated. In the analysis, key elements of business success have also been mentioned such as the need for strategic planning and use of executive officials to implement policies. Enough proof of the fore formulated claim has been sampled providing evidence that is adequate for proving the case presented in this paper. Therefore, it is recommended that before any business venture is explored, the involved parties should study existing information such as is contained in this article. Such information is valuable and will aid proper decisions making. Finally, the statutes of the corporate law prove time and again that they are a complexity that sometimes only professionals can understand. Therefore, it is recommended that expert interpretation of the statutes be made available by the federal government to eradicate future conflicts.

References

a. Desai, M. A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value. The Review of Economics and Statistics, 91(3), 537-546.

b. Desai, M. A., & Dharmapala, D. (2009). Corporate tax evasion with agency costs. Journal of Public Economics, 89(9), 1593-1610.

Djankov, S., Ganser, T., McLiesh, C., Ramalho, R., & Shleifer, A. (2008). The effect of corporate taxes on investment and entrepreneurship (No. w13756). National Bureau of Economic Research.

Hopkins, B. R. (2011). The law of tax-exempt organizations (Vol. 5). John Wiley & Sons.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2010). Financial accounting: tools for business decision making. John Wiley & Sons.

Likhovski, A. (2006). Tax law and public opinion: Explaining IRC v. Duke of Westminster. Duke of Westminster. Studies In The History Of Tax Law, 2nd volume., John Tiley, ed., Hart.

Miller, D. S. (2001). U.S. patent No. 6,202,052. Washington, DC: U.S. Patent and Trademark Office.