Running Head: Ethical Issues in Taxation 1
Ethical Issues in Taxation
Ethical Issues in Taxation 2
Introduction
In the tax practice, it is instrumental to take into consideration ethical implications. The
ethical issue that has been identified that may arise while performing the tax planning of
clients is tax evasion. It refers to an illegal activity that involves the intentional avoidance of
tax by individuals or entities. For preventing the unethical behavior, a number of measures
have been introduced at diverse levels (Uyar et al. 2021). c c c c
Origin of the issue
According to 26 U.S. Code § 7201, any individual who wilfully tries in any manner to defeat
or evade any tax that has been imposed by the title or the payment thereof is guilty of a
felony. In addition to additional penalty charges, the individual shall be fined not over $
100,000 or imprisoned not over 5 years or both, together with the prosecution costs (26 U.S.
Code § 7201, n.d.). Rohde et al. (2023) have argued that the concept of tax evasion, tax
resistance, and tax avoidance are widespread, and they have existed through medieval, early
modern as well as contemporary times.
Benefits and drawbacks
The practice of tax evasion creates benefits only for the tax evader. This is because they are
able to save money by reducing their extent of tax liability through illegal and deceptive
means. By engaging in such an activity, they are able to pay a lower amount to the
government, thereby retaining a higher portion of their earnings with themselves. Tax evasion
has been identified as an unethical practice that does significant harm at the macro level
(McGee, 2022). The drawback mainly arises for the government since the income generated
from tax gets reduced, which diminishes its financial capability to spend money on important
state-level or federal-level matters.
Importance to address the issue
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Addressing the tax evasion issue is of paramount importance for a tax professional. The
professional must adopt an ethical approach so that they can report such practices in case their
clients engage in them. On the other hand, if a tax professional fails to perform his duty in an
ethical manner, their client may feel encouraged to engage in such unethical behavior. It is
imperative to address the ethical issue so that a sense of justice can be prevailed and tax
compliance can be promoted at the holistic level.
Position
A position on the tax evasion issue has been presented by incorporating a diverse range of
resources.
Support
Tax evasion has been identified to be an illegal activity by the existing taxation laws and
rules. The U.S. income tax system is based on the notion of voluntary compliance (Internal
Revenue Service, n.d.). Under the system, it is the responsibility of a taxpayer to report all
their income and pay tax accordingly. This makes tax evasion an illegal activity. Tax
professionals must use their skills, knowledge, and prowess to make their clients follow an
ethical tax planning approach (Internal Revenue Service, n.d.). In case of non-compliance, it
must be reported immediately so that timely actions can be taken against the taxpayer. c
Rebuttal of opposing viewpoints
People who support tax evasion practices may argue that when all their income is reported,
and tax is paid, the money left gets shrunk. However, at the societal level, the payment of the
accurate amount of tax is beneficial since it enables the government to have funds in hand to
make investments in important areas. Proper tax planning is vital since it can help to save
taxes without opting for the tax evasion path. Through proper planning, it is possible to adopt
a legal and responsible approach to save on tax and earn profits.
Argument
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Tax evasion is a deceptive action that can lead to criminal charges. When individuals engage
in such a practice, they intentionally engage in practices to dodge the actual tax amount that
they are supposed to pay. Penalties and fines have been introduced to deter individuals from
engaging in such unethical practices that can lead to significant financial damage in the long
run for the general public and hamper social and economic development. Since the tax
amount is determined based on one’s income, if certain people evade tax, the financial burden
may increase on others. c c
Solution
A solution has been identified which can help to deal with the ethical issue revolving around
tax evasion.
Support
Certified Public Accountants (CPAs) need to play a proactive role to make sure that the
possibility of tax evasion can be reduced by their clients. While employing CPAs, tax firms
must ensure that they possess the minimum qualifications, knowledge, and expertise to
handle situations involving tax evasion. In case they fail to showcase their moral competence,
they are at the risk of losing their professional license. While offering their tax-related
services to their clients, they need to carefully examine the clients so that they can identify
whether there is any chance of tax evasion or not. In case any suspicious activity is identified,
it has to be immediately reported to the authorities.
Course of Action
In contemporary times, tax evasion is a serious problem not only at the individual level but
also at the business level. The emergence of large companies and e-commerce businesses has
increased the challenge for tax authorities to keep track of the revenue that is generated by
such businesses. The transfer pricing rule has been introduced based on the arm’s length
principle. According to the rule, the amount that is charged by a single related party to
Ethical Issues in Taxation 5
another for a specific product has to be the same as if they are not related. The IRS authorities
must be actively involved to ensure correct tax returns are filed, and the risk of tax evasion is
controlled.
Conclusion
Tax evasion is an illegal and unethical action. Certified Public Accountants must use their
skills and expertise to adhere to relevant laws so that the fundamental ethical principles
relating to honesty and integrity, transparency, due care, and professional competence are
maintained. Taxpayers also have a moral obligation that they must consider while paying
taxes on the income that is earned by them.
Reference
Legal Information Institute. (n.d.). 26 U.S. Code § 7201 - attempt to evade or defeat tax.
Legal Information Institute. https://www.law.cornell.edu/uscode/text/26/7201
McGee, R. W. (2022). The ethics of tax evasion: Summaries of 21 studies. Available at SSRN
4056290.
Rohde, D., Hürlimann, G., & Schönhärl, K., (2023). Histories of Tax Evasion, Avoidance and
Resistance (p. 283). Taylor & Francis.
Treasury Department regulations governing practice before the internal ... Internal Revenue
Service (n.d.). https://www.irs.gov/pub/irs-pdf/pcir230.pdf
Uyar, A., Nimer, K., Kuzey, C., Shahbaz, M., & Schneider, F. (2021). Can e-government
initiatives alleviate tax evasion? The moderation effect of ICT. Technological Forecasting
and Social Change, 166, 120597.
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Worksheet solutions - IRS tax forms. Internal Revenue Service (n.d.).
https://apps.irs.gov/app/understandingTaxes/whys/thm01/les03/media/ws_ans_thm01_les03.
pdf
