Forensic Accounting

In both developing and developed countries, every individual and company are obliged to pay tax. Paying tax enables the nation to get revenue which is in return used to run various programs such as electrification, provision of quality health care services, and construction and maintaining of roads. Actually, in most countries, taxation is the major source of income for the government. For this reason, it is unlawful for any individual or company to fail to pay tax, and anyone who is found guilty of this offence faces heavy punishment, including imprisonment, payment of fines or both. Precisely, if any individual or organization is accused of tax evasion, forensic accounting investigations are conducted in order to gather evidence that he or she have really failed to comply with tax compliance regulations. There are numerous cases where organizations and even individuals have been found guilty of tax evasion as it is discussed in this paper. In the United States, the government went to an extent of ensuring that Americans working outside America also pays taxes, as stipulated in the tax regulation policy. This paper discusses the analysis of tax compliance regulation.

Instances where this regulation has been used in courts of law

There is a myriad of instances where the tax compliance regulation has been applied in the civil or criminal case. However, the application of this regulation may be involving a single individual or an organization.

1. Cayman Companies were found guilty to U.S Tax Evasions in 2012

In June 2012, the U.S. Department of Justice announced that two of the Crayman Companies, Crayman National Trust Co. Limited and Cayman National Securities Limited, which used to offer trust management services as well as investment brokerage to the American individuals and entities were guilty of tax evasion. These two companies pleaded guilty to charges levied against them involving the companies` aspect of conspiring with clients so as to conceal taxable amounts from the tax regulatory body (Wood, 2016). Precisely, these two Cayman organizations colluded with and assisted some of its clients to open secret accounts which were hidden in fake companies that the Cayman organizations were operating. In addition, the management of these organizations then faked the ownership of these secret accounts and allowed individuals whom they had registered to participate in the U.S. security exchange deals even without the necessary documentations. After pleading guilty, the two Cayman firms were mandated to pay approximately $6 million as penalties of these charges.  

• Leo Glodzik pleaded guilty for disclosing a false income tax return and fraud scheme

On 20^th September, 2016, Leo Glodzik of Wilkes-Barre was charged in Scranton Pennsylvania for 30 months in prison on numerous charges which were not limited to the illegal gun possession, mail fraud, and filing a false disclose of his taxable income. Following these charges, former towing chief was mandated to pay nearly $300,000 as penalties and tax besides being imprisoned for 30 months. According to the evidence produced in the court of law, Glodzik`s organization, “LAG Transport Incl. (LAG) had entered into a contractual agreement with the City of Wilkes-Barre in order for it to tow all the vehicles requested by either the city of the Police Department” (Internal Revenue Service, 2017). However, Glodzik formulated a mechanism of illegally acquiring money from clients by overcharging storage and towing charges, which in the long run resulted to deliberate prevention of owners to gain access to their motor vehicles, which also amounted to additional discharge fees. This went to such an extent that the towing and storage fees for some vehicles had accumulated to a level that the owners could not manage to pay, forcing them to hand over the ownership of the vehicles to the LAG. Moreover, despite this, Glodzik filed zero federal taxable income in 2008, when in the actual situation the amount that could have been taxed was by far more than what he claimed.

• Wilfred David Joseph Jobin Reyes charged for money laundering

On 23^rd September, 2016, the SeaWorld manager, Wilfred David Joseph was sentenced to 30 months in prison in San Diego, California after he was found guilty of creating sham invoices for a fake organization that he owed, which was referred to as the SJ Merchandise (Internal Revenue Service, 2017). He took advantage of his managerial position and approved financial transfer in the name of the SeaWorld.  He also established a connection between his fake company and the SeaWorld, by creating an informal email that he used to link his company with the SeaWorld Company, personifying himself to be John Caldwell, the SJ Merchandise owner. With time, the management of the SeaWorld company discovered the fraud, but it was too late especially due to the fact that by that time, Jobin Reyes had already managed to milk close to $1 million. In addition, Jobin Reyes also used his fake organization to deceive the tax compliance regulatory firm concerning the taxable income that he claimed he had. He greatly reduced the tax amounts that he revealed he had by a great margin for more than four consecutive years (2010 to 2014). In the real sense, none of the claimed expenses were true, especially due to the fact that the SJ Merchandise did not conduct any real business at all (it was his fake company). In addition to this, Jobin Reyes personified himself with another person, his former roommate and friend in order to conduct all of these illegal transactions. Besides the imprisonment, Jobin Reyes was order to pay $177,000 to John Caldwell (the individual he had personified to be), $818,000 in restitution to SeaWorld,

• Credit Suisse found guilty of criminal charges in the U.S. tax evasion settlement

On 19^th May, 2014, the Credit Suisse Group was found guilty of criminal charges that it helped its clients to evade taxes, and this made this bank to be the first bank to admit these crimes in more than a decade. According to the criminal charges, this bank had gone to extensive lengths to protect itself and the employees from paying taxes. The management of this bank had concealed transactions which involved undeclared accounts by reducing withdrawal amounts as well as using offshore debit and credit cards to repatriate funds. In addition, the bank owners had destroyed bank records and subverted disclosure requirements in order to conceal evidence. Following these charges, the Credit Suisse bank was order to pay a total of more than $1.13 billion as a fine and $670 million in restitution to the IRS (Rushe, 2018). In addition, the bank was also ordered to pay huge fines as penalties for the offence.

Intentions of the Tax Compliance Regulation

There are a number of intentions that stimulated the formulation of this policy in the United States. For example, this policy aimed at sensitizing individuals, public and private organizations to disclose their financial information in order to help in the determination of taxable amounts. Precisely, this regulation aimed at sensitizing business owners to be authentic in terms of their revenues, as well as ensuring that all the employees in the organization pay tax (Organization for Economic Co-operation and Development, 2009). In addition, following the enactment of the Foreign Account Tax Compliance Act, whose main intention is to encourage tax compliance, the federal government aimed at ensuring that organizations as well as international organizations that are operating within the U.S. correctly and regularly comply with tax regulations (U.S. Department of The Treasury, 2018).

Effectiveness of this Regulation

The tax compliance regulation has greatly helped in uncovering individuals and organizations which have been failing to pay taxes, exposing the tax fraud and bring the culprits to book. For example, the above instances of individuals and organizations that have been involved with tax fraud cases could not have been exposed if this regulation was not in place (Simone, Lester & Markle, 2017). Moreover, this regulation has helped in the prevention of more fraud cases from being propagated by individuals and organizations who put selfish interests before the interest of others or those they serve (The U.S. Foreign Account Tax Compliance Act (FATCA), 2017). This is mostly due to the heavy punitive measures that are applied to individuals and organizations that have been found guilty of this offence. Precisely, the aspect of deterrence is enforced by this regulation. When individuals and firms that pleads guilty of this offence are ordered to pay heavy fines, then other individuals and organizations which might have been intending to commit tax fraud may deter from doing it due to the fear of facing the same consequences.

Possible Changes to The Tax Compliance Regulation

There are a number of changes that can be embraced to this regulation. For example, there is need to increase the punitive measures of individuals and organizations who pleads guilty of tax frauds, as this would help in ensuring that the problem of tax fraud is dwelt with once and for all. Most organizations have been doing very well in their respective industries, and this means that the owners of such firms can engage in any fraud activity since they have the financial muscle to bail out the penalties applied. In addition, there is need to extend the forensic audits to deeper levels in order to unearth even the minimal activities that amounts to tax frauds (Blazek, 2004). In addition, considering that the world has become digitized with the numerous technological inventions that have been developed in the recent decades, the IRS and other tax enforcers should embrace the use of electronic tax registers in order to not only lower tax compliance costs, but also ensure full remittance of tax by firms (Mogeni, 2012). When this is implemented, customer service activities such as returns processing, taxpayer`s service and the administration of tax reforms and publications would be run in a more effective manner. In addition, there is need to launch an extensive campaign concerning the importance of individuals and organizations complying with the tax regulation policy. This would help in changing the perception of many individuals who may be tempted to evade tax. The tax education campaign would also help in reminding those who already know about the dangers of failing to comply with the tax regulation, and this would greatly sensitize them to remain true to the course. The tax education campaign can be conducted through sending brochures to organizations, running tax programs through the television sets and radio, and through regional seminars.

References

Blazek, J. (2004). Tax planning and compliance for tax-exempt organizations: Rules, checklists, procedures. Hoboken, N.J: John Wiley & Sons.

 Companies. Retrieved from, http://erepository.uonbi.ac.ke/bitstream/handle/11295/75878/Mogeni_The%20effects%20of%20compliance%20cost%20on%20tax%20compliance%20of%20companies.pdf?sequence=3

Internal Revenue Service, (2017). Examples of General Tax Fraud Investigations – Fiscal Year 2016. Retrieved from, https://www.irs.gov/compliance/criminal-investigation/examples-of-general-tax-fraud-investigations-fiscal-year-2016

Mogeni E., D., (2012). The Effects Of Compliance Cost On Tax Compliance Of

Organisation for Economic Co-operation and Development. (2009). Building Transparent Tax Compliance by Banks. Paris: OECD Publishing.

Rushe D., (2018). Credit Suisse pleads guilty to criminal charges in US tax evasion settlement. Retrieved from, https://www.theguardian.com/business/2014/may/19/credit-suisse-plead-guilty-criminal-charges-us-tax-evasion

Simone L., Lester R., and Markle K., (2017). Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA). Retrieved from, https://business.illinois.edu/accountancy/wp-content/uploads/sites/12/2017/02/Tax-Symposium-2017-Session-I-b-De-Simone-Lester-and-Markle.pdf

The U.S. Foreign Account Tax Compliance Act (FATCA), (2017). Regulations and Tax. Retrieved from, https://www.hkex.com.hk/Global/Exchange/FAQ/Regulation-and-Tax/The-U,-d-,S,-d-,-Foreign-Account-Tax-Compliance-Act-(FATCA)?sc_lang=en

Wood R., (2016). Cayman Companies Plead Guilty To U.S. Tax Evasion, Handing Over American Accounts. Retrieved from, https://www.forbes.com/sites/robertwood/2016/03/10/cayman-companies-plead-guilty-to-u-s-tax-evasion-handing-over-american-accounts/#1a502a713304

U.S. Department Of The Treasury, (2018). Foreign Account Tax Compliance Act (FATCA). Retrieved from, https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx

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