Tax fraud, which is also commonly referred as to tax scamming, can be defined in various ways. On the one hand, tax scamming included a positive deception of the tax services, or infringement of duties stipulated by the legislature. The tax services, thus, can be accused of false representation of the information, or of failure of disclosing true information. On the other hand, the concealed data can be further used for fulfilling false accounting operations contradicting all the acts issued by the law. It is not weird that, tax scamming frequently occurs to small businesses and individuals who claim their personal purchases under their business’s names and try to make refund. What is more important is that, apart from legal issues, such cases presuppose the ignorance of ethical aspects in the sphere of accounting. Hence, an ethical dilemma arises, as small businesses and individuals resort to all possible ways, both legal and illegal, to get a tax deduction for their personal expenses. Such situations are not ethical both towards the government and toward the companies’ employees whose salaries should be extracted.
There different ways and schemes of tax scams in small businesses conducted for the purpose of raising net income and minimizing the deductions from the firms’ annual incomes. For instance, the owners of small business deceive their employees and authorized organs to withhold the taxes from their salaries (Kaplan 174). They claim that some information about the company is concealed because it is too confidential. Others owners avoiding taxation revealed some that they need a special deduction for Afro-Americans as reimbursement for slavery or as help in preparing a refund claim. Of course, in viewing the problem ethically, small business whose incomes suffer from abusive taxations, as their main goal is to justify the inputs made by investors, to produce the outputs for the customers and to benefit from sales.
A bright example of neglecting the governmental needs is revealed in the newspaper article called Revenues halts tax settlements where taxpayers concluded an agreement with the Inland Revenue on the “unpaid taxes” basis (“Revenue halts tax settlements” n.p.). Here, the ethical dilemma consists in constipation between the taxpayers of Hansard settlement and the Revenue’s tax officers that was arranged on an interest basis. On the one hand, this agreement does not contradict the main goals of organizational performance, as each part is satisfied with the results. On the other hand, when considering the third party, which is the government, the Inland Revenue is an intermediary between the taxpayers and governmental tax organizations. More importantly, the taxpayers do not feel any responsibility for breaking the law and ignoring their duties in front of the government and other people of the country.
The second case of tax scamming is just the opposite. The article called Ernst & Young partners charged with tax fraud investigates the case about the accounting company Ernst & Young that was accused of scam conspiracy and other related crimes (Herman and Lindsay n.p.). The accused created false tax returns containing vague clients’ motivations for concluding agreements and transactions. They also hid the actual information of Internal Revenue Service. Viewing this case ethically, the main victims are the clients and the tax authorities. The clients’ rights and morale were totally ignored, as the accounting firm failed to observe their social responsibilities before those.
The above situation can be viewed as definitely immoral and unethical toward the taxation authorities and governments. This idea is explained and considered by the shareholder theory revealing how to manage successfully the organizations and follow the ethical standards in business ethics. In particular, managers of small businesses, both state and non-state, tend to encounter different organizational liabilities that are based on a positive ethical and social performance (Rasche and Esser 251). The theoretical justification of organizational management has provoked numerous discussions on accountability standards. The emergence of numerous standards forces the stakeholders to think over which standard would best their particular situation. With regard to the stakeholder theory arguing the involvement of the government and other social organizations as stakeholders as well, small businesses fail to observe the main duties, which are revealed through the following statement:
…we define organization accountability as the readiness or preparedness of an organization to give an explanation and a justification to relevant stakeholders for its judgments, intentions, acts, and omissions when appropriately called upon to do so (Rasche and Esser 252).
Arising from the above, in case the owner neglects these requirements, he/she exposes his/her firm to the risk of being fined. This means that the breach of organizational issues contradicts the business ethics and the stakeholder theory.
To provide an in-depth explanation of tax scams committed by small business, it is necessary to determine the boundaries within which tax scamming is considered to be both illegal and immoral. Certainly, there exist a bias that business and ethics are non-compatible meanings, as the priority is given to satisfying personal needs and increasing the company’s revenues. The justification of the presence of ethical aspect in business environment is definite as everything that is connected with human communication and activities make businesses face ethical stumble blocks. This is why the modern education considers it necessary to include this subject into the academic curriculum (Felton and Sims 379). In particular, the students learn such aspects as conducting successfully business, managing the organizations and focusing on committing theoretical issues to practice.
Needless to say that law and morality are closely associated with social responsibility which can be also considered from the ethical angle. Social awareness especially pertains to tax accounting, as all stakeholders are involved both in social and in business relations. Despite the differences in definitions of social responsibility and ethics, the business domain allows to attribute these notions to each other. In particular, when dealing with ethical issue in business setting, it is possible to talk about corporate social responsibility. According to Fisher, “the difference between ethics and social responsibility is that people “have” ethics while organizations “have” a social responsibility to protect and enhance the society in which they operate” (392). In other words, each organization should follow duties and obligations for social welfare.
In our second case, Inland Revenue itself in dual situation, as it meets taxpayers’ interest halfway on the one hand, and on the other hand, it confronts accusations on the part of the government. Considering the taxpayer’s positions, the priority is given to self-interest and to needs satisfaction. In this case, they follow the stakeholder theory that puts the needs of the individuals to the foreground. The second case confronts both the stakeholder theory and business ethic in general, as they failed to follow the main goals of organization and to consider the interests of its employees.
Analyzing the case from personal position, the particular situation contributes to defining the difference between the notions “effective” and “right”. Thus, relying on the theoretical ground, the Revenue believes that the agreement with taxpayer is the most effective way to obtain benefits and to meet taxpayers’ needs. However, this decision cannot be considered as right. Hence, the scapegoat of this situation turns out to be Inland Revenue that is accused by the government whereas the taxpayers remain on the save side and preferred to keep silent. This case is also predetermined by human factor since people were more concerned with their own needs. The second case leaves fewer contradictions and space for ethical discussions, as the Ernst & Young were the actual violator of social and legal responsibilities. They ignore their clients’ rights and interests and duties in front of the government. Like, Inland Revenue, the accounting firm consider it effective to trade by fraudulent cars and deceit their customers. However, it led considerable losses in the form of fines.
In conclusion, it should be stated that accounting business and taxation matters closely relates to the ethical problems. With regard with business ethics and stakeholder responsibility, small business should be subjected to social responsibility in terms of filing a tax return, as their activities are linked with human communication and social welfare inside and outside the company. Pertaining to individuals, they should be subjected to ethical and moral awareness when dealing with tax fraud like in Inland Revenue’s case. Anyways, the two cases presented in the paper correlate with ethical decisions made both by the taxpayers and companies.
Works Cited
“Revenue halts tax settlement.” Times Online. 2003 web.
Felton, Edward, L., and Sims, Ronald R. “Teaching Business Ethics: Targeted Outputs” Journal of Business Ethics. 60. 4 (2005): 377-391.
Fisher, Josie. “Social Responsibility and Ethics: Clarifying the Concepts”. Journal of Business Ethics. 52.4 (2004): 391-400.
Herman, Michael, and Lindsay, Robert. “Ernst & Young partners charged with tax fraud”. Times Online. 2007. Web.
Kaplan, Martin S. What the IRS doesn’t want you know: a CPA reveals the tricks of the trade. US: John Wiley and Sons.
Rasche, Andreas, and Esser, Daniel E. “From Stakeholder Management to Stakeholder Accountability”. Journal of Business Ethics. 65.1 (2006): 251-267.