Essay 1

There are three laws on
tax behavior, (including reporting and financial statements) they are Economic
Substance, Business Purpose, and Substance over Form.   These
restrictions apply to a business as a taxpayer, it is important for a business or
company to abide by these tax laws and reporting.Not only is the business or
company responsible for upholding of them, executive staff are also responsible
and can face broad consequences including criminal charges for intentionally
unethical behavior.  These are among the strictest rules regarding
economic substance, business purpose and substance form. (Myron S. 2014)
Ethically, it also displays a business’ character of their company.  The
Internal Revenue Service (IRS) the United States governments regulator of tax
laws and reporting, has powerful laws and doctrines that were “generally
judicially developed” (Myron S. 2014) It will be the responsibility of
Jefferson Industrial Machinery (JIM) to abide by these laws, reports, and
doctrines.  Stakeholders, shareholders, and company administration have a
genuine interest in upholding these.  The ability for a company to remain
ethical and transparent can be vital to their future growth and continuation of
the company.  Financial auditors, or firms which are independent from a
company have ethical standards and regulations which tell them how they report,
and what they report. The public and others rely on these independent financial
reports as a tool to look into the company and its transactions so that there
are no obvious surprises when a potential downfall does occur.  These
statement provide analysts the tools to view how a company is financial
performing, their financial “health” and other aspects of a company. 
Recent scandals such as Enron have changed tax laws, reports and doctrines to
protect future stakeholders in any business.  When issuing financial
reports on a company there are laws that must be adhered to, these can be
governed by boards such as the Financial Accounting Standards Board (FASB),
Generally Accepted Accounting Principles (GAAP), and the American Institute of
Certified Public Accountants (AICPA).  Independence from a company
provides financial reports from a third party view, or can be best described as
a party not having an interest in the outcome of the reports so that they are
presented in a fair and as accurate as possible manner.

Economic Substance
doctrine in a summary is where the law states that a transaction is to have an
economic purpose separate than a reduction of tax inability in order for it to
be considered a valid transaction. The actual finance senate committee (United
States Government) summarizes the code as providing detailed regulations and
rules that specify the computation of the income that is taxable, this includes
the amount of the income, timing that the income is earned or received, source
of where the income comes from or derives from, and character of items of
income, gain, loss, and deduction. (Finance Senate) Economic substance can be
translated as tax deductions claimed and they have no economic purpose or
substance behind them.  Penalties can be assessed, even if they were not
intentionally avoiding taxes or claiming deductions.

Business Purpose
Doctrine purpose it to not allow taxbenefits where the purpose of the transactions
is for tax savings or avoidance of paying taxes.  The Internal Revenue
Service (IRS) has a say in whether or not the business has a valid purpose,
this is a situation that is worked out between the business and the Internal
Revenue Service.  If a situation between the Internal Revenue Service and
a business escalates to a level as far as court, regarding transactions that
appears to have no other valid business purpose than to avoid taxes, the
benefits that were allowed or sought after are disallowed and further penalties
may be assessed.  Avoiding taxes is one of the transactions that courts
try to determine.  For example, loaning of funds by one party at a
percentage, and then placing a percentage of those interest funds into an interest
bearing account, and reporting a higher loan percentage.  (Sommers, R 97)

The Substance Purpose
doctrine is a doctrine of the united states tax law that provides a transaction
must have an economic purpose, other than trying to avoid a tax
liability.  This is where the substance of the transaction is weighed more
than the form of the transaction.  The form is how 7(the involved parties
document the transaction. It is also used to separate a transaction, such as
those between family members and determine its tax substance.There can be
situations where family members loan money, but are not received back or a home
can be in the form of a sales transaction and no payments are ever
made/received which then moves it to being a gift. (Summers R 1997)

References to the Economic
Substance Doctrine were enacted as subsection (o) of section 7701 of the
Internal Revenue Code by section 1409 of the Health Care and Education
Reconciliation Act of 2010. [2][3] (IRS Guidance for Examiners and Managers on
the Codified Economic Substance Doctrine and Related Penalties 2010)

Social benefactors of
these doctrines is that taxes are fairly assessed and paid.  There are
those individual taxpayers or business owners that would appreciate a higher
income, and lower taxes.  They must understand the uses and purposes of
the taxes that are being assessed and paid by them.    Business
owners should not view the taxes as a burden to their business, as there are
many socially beneficial credits that can be benefitted from.  Some of
these credits can be for hiring or doing business with minorities, work
opportunity credits, credits for providing health care, and credits for
providing employees a retirement plan to name a few.  Jefferson Industrial
Machinery (JIM), would be in the company’s best interest to educate and comply
with these three important as well as broad tax payer restrictions in order for
the company to not only hold themselves ethically high, but also to give
current and future stakeholders confidence in the company.  Recent company
scandals have brought companies under public speculation and also ‘under the
microscope’.  Not only is doing the right thing as far as taxes and
reporting the ethical thing to do, it is also the legal thing to do and
prevents individual’s and company’s out of legal trouble.  Further,
Independent Auditors and Auditing Firms have been tasked with updated
requirements, and ethics in the manner in which they report financially on
companies.