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Accounting Ethic Chapter 9

KPMG admitted to tax crimes in 2005 related to the design and implementation of fraudulent tax shelters. They agreed to pay $456 million in fines and tax refunds. The IRS commissioner stated that tax professionals should help people properly pay their tax obligations. According to AICPA standards, taxpayers have final responsibility for their tax filings, but accountants must ensure clients do not pay more than legally owed and should inform clients of errors. It is unethical for accountants to fulfill requests that significantly reduce tax obligations through illegitimate means.

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48 views2 pages

Accounting Ethic Chapter 9

KPMG admitted to tax crimes in 2005 related to the design and implementation of fraudulent tax shelters. They agreed to pay $456 million in fines and tax refunds. The IRS commissioner stated that tax professionals should help people properly pay their tax obligations. According to AICPA standards, taxpayers have final responsibility for their tax filings, but accountants must ensure clients do not pay more than legally owed and should inform clients of errors. It is unethical for accountants to fulfill requests that significantly reduce tax obligations through illegitimate means.

Uploaded by

nabila Ika
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The Ethics of Tax Accounting

One of the ethical issues of tax accounting is the disclosure of cases of tax violations by KAP
KPMG in 2005. The Department of Justice and the Internal Revenue Service (IRS), US in
August 29, 2005, reported the following KPMG tax violations:
“KPMG has admitted to the tax crime, and is willing to pay the fine and
US$456 million tax refund. In addition, KPMG also approved 9 of its staff, including 6
KPMG partner and former vice chairman of the company were found to have committed
criminal acts in the form of a tax crime conspiracy (fraud) relating to the design,
marketing, and implementation of fraudulent tax shelter”.
Actions taken by KPMG officials:
Taxpayers with large incomes or with large capital gains can reduce
its tax obligations at a cost of 5-7% of total tax liability to be avoided
(shelters). Additionally, based on an IRS examination:
1. KPMG failed to register tax evasion and related matters.
2. KPMG is involved and plays a role in tax avoidance.
3. KPMG deliberately failed to produce a summons document issued by the IRS.
4. KPMG provided false and evasive testimony to the IRS regarding its nature and scope
involvement in certain shelters.
This is certainly not ethical because according to IRS Commissioner Mark Everson said
that: “Tax professionals should help people pay their tax obligations properly,
nothing more and nothing less.”
Another form of tax crime is as reviewed in the business week magazine about
Bond Linked Issue Premium Structures sold to at least 186 wealthy people, and
has resulted in tax losses of at least US$ 5 billion.
In AICPA statements number 10 and 11, concerning Standards for Tax Services, it is stated
that:
10. The self-assessment tax system can only function effectively if
taxpayers report their income correctly, accurately, and completely. Tax refund
prepared based on factual representations of taxpayers and taxpayers have
final responsibility for the position taken in the return.
11. As a companion to the taxpayer's obligations, the accountant has an obligation to
comply with the system, and ensure that taxpayers do not pay more than their tax obligations
its legal.
Responsibilities of taxpayers, Final responsibility for presenting facts and tax obligations
exists in the hands of taxpayers, but accountants have an obligation to demonstrate legal
obligations taxpayers in accordance with applicable regulations. This responsibility is in
accordance with the nature of tax system, namely the self-assessment system, which requires
taxpayers to calculate own tax obligations honestly and correctly.
The AICPA helps its members to fulfill their ethical responsibilities by
develop standards that can be used to measure the professional performance of members.
Summary of the Statement on Standards Tax Services (SSTS) developed by the AICPA
are as follows:
1. A member should not recommend a tax return position unless it has a realistic
possibility of being sustained on its merits.
2. A member should make a reasonable effort to obtain from the taxpayer the
information necessary to answer all questions on tax returns.
3. A member may rely on information furnished by the taxpayer or third parties without
verification.
4. Unless prohibited by statute or by rule, a member may use the taxpayer’s estimates in
the preparation of a tax return if it is not practical to obtain exact data and the member
determines that the estimates are reasonable based on the facts and circumstances
known to the member.
5. A member may recommend a tax return position or prepare or sign a return that
departs from the treatment of an item as concluded in an administrative proceeding or
court decision with respect to a prior return of a taxpayer.
6. A member should inform the taxpayer promptly upon becoming aware of an error in a
previously filed return or upon becoming aware of a taxpayer’s failure to file a
required return.
7. A member should use professional judgment to ensure that tax advice provided to a
taxpayer reflects competency and appropriately serves the taxpayer’s needs.
According to the standard, it is unethical for accountants to fulfill client requests
significantly reduce their tax obligations, because they signed a tax returnTax is the same
as guaranteeing that the amount of tax payable is correct and complete. accountant who
Signing the wrong tax return is a real lie and also commit ethical violations. Although it
must be admitted that in tax accounting there are indeed a gray and problematic area,
which is an area where it is possible to circumvent the system and tax regulations.
Crenshaw in his article gives four reasons why this tax shelter exists:
1. There is an effort by corporate management to find new ways to control business
costs, and Unable to raise the price, the company started looking for ways to cut its
taxes which is considered a cost.
2. Increasing complexity in tax regulations and the world of finance, economic realities
will be hampered or diminishing that reality – in a series of transactions.
3. The perception among investment banks and others that dreaming and packaging tax
products "is" a successful line of business”, as William J. Wilkins of Wilmer, Cutler
& Pickering, and a member of the tax division of the American Bar Association.
4. Low risk. Not only is it difficult for the IRS to detect shelters, but the penalties tend to
be light and not always given.
The following is the contents of the Statements on Standards for Tax Services (SSTS):
 Standard Statement No. 1. Tax return position
 Standard Statement No. 2. Answers to questions on returns
 Standard Statement No. 3. Certain procedural aspects of preparing returns
 Standard Statement No.4. Use of estimates
 Standard Statement No.5. Departure from a previous position
 Standard Statement No. 6. Knowledge of error
 Standard Statement No. 7. Form and content of advice to taxpayers

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