Tax Professionals Research Articles

The Paradise Papers – A Reminder of the Legal and Professional Constraints in Advising on Offshore Tax Matters

After the revelations in the Paradise Papers at the end of 2017 many people started to ponder the legal and professional requirements that are imposed on tax advisers and the consequences for those advisers in breach of them. This article addresses these issues in the Australian context, and examines the main concerns faced by Australian tax professionals when providing advice and assistance to clients that engage in offshore activities. The author concludes that offshore activities are a high-risk area for advisors and that, when tax advice is given, it should be within the letter and spirit of the law, after taking account of the advisors’ legal and professional obligations and ethical considerations.

Визначення рівнів сформованості правової компетентності майбутніх фахівців з обліку і оподаткування

According to the results of the analysis of scientific works and own experience, in order to evaluate the state of formation of legal competence of future specialists in accounting and taxation, on the basis of scientific substantiation both in theoretical and practical terms, the criteria, indicators and levels of its development are defined. It is proposed to use a three-stage assessment scale (initial, medium and high levels of legal competence formation), which, in our opinion, is relevant to the specificity of the object under study. Therefore, the initial level of legal competence of future accounting and tax specialists indicates that students have partial legal knowledge and do not know how this knowledge can be used in future professional activity; they do not want to improve their knowledge, their professional level, they have episodic interest in mastering their chosen profession, which is stimulated only by external factors. In the process of learning knowledge is learned formally, the student is not able to work independently, acting on the prompt and unable to explain their actions and the predicted result. Students who are characterized by an average level of legal competence are characterized by unstable positive motivation, episodic interest in the formation of legal knowledge and skills. This group has the skills to solve typical professional tasks, but they cannot creatively craft material because of a lack of knowledge and skills. Students are aware of the shortcomings of their training and the need for self-improvement, but the motives behind this process are external factors. Students who demonstrate a high level of legal competence are formed with a strong motivation to acquire legal knowledge, a desire to find non-standard solutions, and independent work skills. They adequately assess their level of readiness, find ways to improve it. They have a conscious understanding of purpose, predicting their actions; they know the real assessment of their capabilities, they have a desire for creativity, the ability to self-analysis and self-esteem. Further research may be aimed at improving approaches and methods to simplify and automate the process of assessing the future competence of accounting and tax professionals proposed by this technology, in particular by directly testing the computer during and after graduation.

A public goods model of outcomes from online knowledge sharing mediated by mental model processing

PurposeThis study aims to take a public goods approach to understand relationships between collecting and contributing knowledge to an online knowledge sharing portal (KSP), mental model processing and outcomes at the individual and collective levels.Design/methodology/approachThis study reports on a survey (N = 602) among tax professionals, examining the perceived individual and collective benefits and costs associated with collecting and contributing knowledge. Hypotheses were tested using structural equation modeling.FindingsCollecting and contributing knowledge led to considerable mental model processing of the knowledge. That in turn significantly influenced (primarily) individual and (some) collective costs and benefits. Results varied by the kinds of knowledge sharing. Whether directly from knowledge sharing, or mediated through mental modeling, the perceived costs and benefits may be internalized as an individual good rather than being interpreted at the collective level as a public good.Research limitations/implicationsThe study is situated in the early stages of a wiki-type online KSP. A focus on the learning potential of the system could serve to draw in new users and contributors, heightening perceptions of the public goods dimension of a KSP.Practical implicationsA focus on the learning potential of the system could serve to draw in new users, and thus the number of subsequent contributors, heightening perceptions of the collective, public goods dimension of a KSP.Originality/valueThis study explores how knowledge sharing and mental model processing are directly and indirectly associated with individual and collective costs and benefits. As online knowledge sharing is both an individual and public good, costs and benefits must be considered from both perspectives.

The Cost of Trust: A Pilot Study

Trust is a fundamental precondition underpinning exchange and economic coordination, but is costly to maintain. Given the potential for agents to enjoy zero-sum gains by opportunistically betraying the trust of exchanging counterparties, an edifice of occupational roles, organisational forms and institutional practices have emerged in an effort to uphold trust. In simple terms, there exists a “cost of trust.” This paper provides numerical estimates of the cost of trust for the United States economy, based on an attribution of labour force occupational data with varying degrees of trust-maintenance. Occupations represented in high cost-of-trust activities include managers, lawyers and judges, tax professionals, accountants and auditors. Overall, it is estimated that the cost of trust accounts for 35 per cent of U.S. employment in 2010. The cost of trust has significant implications for the economic applicability of blockchain compared with conventional forms of ledger technology largely maintained by centralised third-party organisations.

Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations

A major trend challenging both tax professionals and the Internal Revenue Service (“IRS” or “Service”) is ever-accelerating globalization, and the resulting compliance challenges of international tax administration. United States (“U.S.”) taxpayers with interests in foreign corporations often need to report their interests to the IRS by including Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, with their annual income tax return. To facilitate timely compliance, Congress imposed penalties for non-compliance starting at $10,000 for each annual accounting period with which a failure to file exists. This article will review Form 5471, who must file it, what information it must contain, how to challenge a penalty, how to correct non-compliance and the impact of the new tax legislation.

The Criminality of "Tax Planning"

In recent years, the federal government has adopted an aggressive prosecution policy that targets tax advisors who help their clients evade taxes. Increased prosecutions coupled with the present-day sophistication of tax practice call for a critical examination of the willfulness standard applied to tax advisors who use the Code and Treasury regulations as part of their regular practices. This is something no previous legal scholarship has done. To establish willfulness, the government must show that a person accused of a tax crime intentionally violated a known legal duty. Because knowledge of illegality is an element of the government's tax evasion case, prosecutors must negate a defendant's claim of ignorance or misunderstanding of the law, which is evaluated subjectively. The mistake of tax law defense and the knowledge of illegality standard are anomalies since ignorance of the law usually is not an excuse. The Supreme Court, however, has said that tax law is special due to the need to protect average citizens from prosecution for innocent mistakes made due to the complexity of the tax laws. The same high standard of willfulness that applies to average citizens also applies to tax professionals. This Article aims to do two primary things. First, it demonstrates that consideration should be given to broadening the current willfulness standard as it is applied to tax advisors. Second, it evaluates the suitability of Samuel Buell and Lisa Kern Griffin's work on "consciousness of wrongdoing" as one possible approach to consider. Beyond tax scholars and practitioners, this Article may resonate with those interested in criminal law generally and white collar crime in particular, as well as those interested in issues ofprofessional responsibility.

Reporting Transfers From Us Taxpayers to Foreign Corporations – IRS Form 926

Driven by international trade and investment, and connected by family and technology, New York and New Jersey small businesses are expanding their businesses offshore. Entrepreneurs transfer property, cash, and other assets overseas or to foreign holding corporations to conduct everyday business transactions. Most tax professionals have taken continuing education courses on the Form 5471, Information Return of U.S. Persons With respect To Certain Foreign Corporations. However, the audits of entrepreneurs have revealed a filing requirement being overlooked - when a U.S. Person transfers property to a foreign corporation, he or she may need to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. This Article explains the basics of Form 926.

Reporting Large Foreign Financial Assets, IRS Form 8938

During the last year, the Internal Revenue Service (“IRS) has announced several compliance campaigns designed to verify a taxpayer’s compliance with the Foreign Account Tax Compliance Act (“FATCA”). These campaigns encourage better tax compliance from U.S. taxpayers, banks, and other financial organizations subject to U.S. taxation on their income and assets. Among FATCA’s reporting requirements is section 6038D of the Internal Revenue Code (“Code”). This section provides that taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. It also imposes penalties for noncompliance. This Article will review what tax professionals representing individuals should know about Form 8938 and controversies based on the audit of Form 8938.

Making Tax Havens Work: The Necessity of Tax Professionalism

ABSTRACT The Tax Cuts and Jobs Act of 2017 overhauled the U.S. corporate tax system, lowering the statutory rate, exempting foreign earned income, and strengthening anti-abuse provisions. However, opportunities and incentives for abuse remain. Therefore, while developing tax policy is helpful, this paper posits that developing tax professionalism—not only tax policy—is needed. Efforts to reform tax policy should be balanced with efforts to develop and guard tax professionalism. Implementing tax policies in a flourishing tax system requires flourishing tax professionals. We develop theoretical and moral analyses to assess tax policy and tax professionalism approaches to tax reform. By targeting processes in the tax system, the tax policy approach attempts to influence practitioner behavior by restricting opportunities and incentives for corporate tax aggression. The tax professionalism approach recognizes that beneath efforts to influence behavior is a deeper, fundamental challenge to develop and protect tax professionals as reflexive agents capable of responsibly handling tax system opportunities and incentives. The tax professionalism approach focuses on persons in the tax system—not processes. This paper draws attention to the limitations of the tax policy approach and to the complementary need for the tax professionalism approach and proposes practical approaches to developing tax professionalism.

세무전문가의 직장－가정 갈등이 직무만족과 이직의도에 미치는 영향

세무전문가의 직장－가정 갈등이 직무만족과 이직의도에 미치는 영향

An Experiential Investigation of Tax Professionals' Contentious Interactions with Clients

ABSTRACTThis paper is a descriptive exploration of the under-researched area of contentious interactions between tax professionals in public accounting and their clients. We collect data in two waves. First, we employ an experiential questionnaire (EQ) to obtain rich, detailed data about actual contentious client interactions experienced by tax professionals. Second, we conduct a follow-up survey based on the results of the EQ to provide additional insight. We find that tax professionals often employ arguments relating to possible taxing authority (e.g., Internal Revenue Service) actions and the technical merits of the tax position to persuade their clients. We also provide additional details about the types of contentious issues tax professionals experience and how these issues are resolved. Importantly, our results point to a need for more training on how to deal with contentious issues, as most professionals strongly believe training is needed, even though few have actually received training.Data Availability: Contact authors.

Standard and Issue of Real Estate Tax Assessment

세법상 부동산의 과세평가방법에는 시가주의와 기준시가주의가 있다. 시가주의는 조세평등원칙에 부합하는 장점이 있으나 시가조사에 막대한 행정력이 소요된다. 반면 기준시가주의는 행정부담을 덜 수 있으나 평가액이 시가를 제대로 반영하지 못한다. 개별 세법은 시가주의와 기준시가주의 중 하나를 채택하거나 때로는 양자를 함께 사용하기도 한다. 평등과세의 취지상 기준시가를 적용하기 위해서는 기준시가가 시가를 적정하게 반영하거나 또는 시가를 반영하는 수준에 일관성이 있어야 한다. 그런데 현행 기준시가는 부동산의 시가를 제대로 반영하지 못하며, 개별 부동산 사이에 현실화율의 차이도 크다. 부동산은 개별성이 강하고 거래도 빈번하지 않아서 기준시가와 시가의 차이는 불가피하며 이점은 현실화율도 마찬가지이다. 그렇지만 현실화율이 10%-80%일 정도로 차이가 큰 것은 납득하기 어렵다. 이점에서 현행 기준시가는 조세평등원칙을 훼손하고 있어 개선이 요구된다. 무상취득 및 과점주주 취득에 대한 취득세는 법률상 아무런 기준 없이 납세자의 신고가액 그대로 과세표준을 삼고 있다. 상속세 및 증여세는 법률에서 시가주의를 채택하고 있으므로 토지에 대한 보충적평가법을 폐지하는 것이 바람직하다. 인근지역내 유사한 토지가 존재하고 있고, 이들 토지에 대한 매매사례, 감정사례 등이 많아 사례를 이용하면 시가산정이 용이하다. 일차적으로 납세자가 시가를 조사 제출하도록 하고 그것에 대해서 과세관청이 검증하는 절차를 마련하는 것이 합리적이다. 양도소득세 역시 실지거래가액을 채택하고 있으므로 실지거래가액이 아닌 환산가액으로 취득가액을 삼는 것은 제도의 취지에 부합하지 않는다. 환산가액이 세금을 회피하는 수단으로 남용되는 것은 개선이 요망된다. 다른 대체수단을 모색할 필요가 있는데 조세평등 및 남용방지를 감안하면 감정전문기관의 감정이 바람직한 것으로 보인다. 기준시가를 과세평가에 전적으로 사용하는 재산세에서는 현실화율이 모든 부동산에서 통일적으로 유지될 것이 요구된다. 특히 토지 개별공시지가의 개선이 절실하다. 개별공시지가의 난맥상은 단순히 시가파악의 어려움에 기인하기 보다는 행정관청의 무관심이나 정치적 고려가 주요 원인이다. 또한 토지, 건물, 주택 간에 과세부담의 차이가 크게 발생하지 않도록 세밀한 설계가 요구된다.There are two methods for real estate assesment in the taxlaw. One is market value, another is tax standard value. Many tax adopts tax standard value because it is easy to operate with low administrative burdens. Tax equality is the basic principles of the taxlaw. So to use tax standard value for taxation, it should reflect market value properly or same proportion for market price by the types of tax. Many studies point out that current tax standard value is too low by market price and assessment ratio of each real estate is so different that the rate range 10%- 80%. So by using tax standard value in real estate taxation, tax equality can be violated seriously. In real estate acquisition tax, gratuitous acquisition is taxed by self-assessed price by taxpayer without any standards, so it is need to improve. Inheritance and gift tax adopts market value principle, but when taxpayer insists that he can not find market price for land, tax can be is imposed by officially assessed land price which is very low comparing market value. Market value of land can be obtained in varying ways. There are many sales cases, appraisal cases for nearby land by which market price can be obtained So in the Inheritance and Gift Taxlaw, assessment method for land should be improved. Capital gain accrued from real estate is taxed by actual income. But when taxpayer insists that he does not know the acquisition price, the Income Taxlaw admits conversed price for acquisition price, which is calculated by using tax standard value. Misuse that is done by taxpayer or tax professionals is widely spreaded. It is needed to replace other method when taxpayer really does not know acquisition price, though it is rare case. I propose appraisal method because it can achieve better equal taxation and prevent the abuse. And to achieve equal taxation in property tax which use tax standard value completely for tax base, assessment ratio should be maintained uniformly regardless type or region.

Tax Controversy Corner - Consider the Constructive Partnership Rules Before Reorganizing to Elect Out of the BBA

The Bipartisan Budget Act of 2015 (the “BBA”) made substantial changes to the audit procedures for passthrough entities. The BBA repealed the prior rules for partnership audits and replaced them with a centralized regime that, in general, assesses and collects tax at the partnership level. Tax professionals have expressed concern that assessment and collection of tax at the partnership level is inconsistent with the long-standing rules of taxation of passthrough entities, and may have unpredictable and incongruous consequences. Not surprisingly, one of the first questions that partners and practitioners asked was “how do we get out this?” Treasury and the IRS, however, want most partnerships to be covered by the BBA, and thus the election out rules have been a controversial aspect of the BBA.

Why Examples? Towards More Behaviorally-Intelligent Regulation

Tax regulation authors habitually infuse regulations with explanatory examples. These examples are viewed favorably by both the government that encourages their drafting and the taxpayers who regularly rely on such examples to assist them in dealing with the notoriously complex tax rules. Despite the ubiquity of these examples, there is no published guidance for their drafting, their use, or their interpretation. The first original contribution of this Article is the exposition and classification of the advantages and deficiencies in the current use of examples in tax regulations. This Article is the first to question the rationale behind the ubiquitous use of examples in tax regulations. The Article uses data collected by original surveys of expert tax professionals and government employees involved in drafting tax regulations. The second original contribution of this Article is the explanation of the appeal of these examples among tax experts, and the potential hazards of the examples despite this apparent appeal. This analysis uses insights from behavioral science, and particularly from the study of cognitive biases, to explain, for example, how anchoring via an example could shift the focus of a regulatory rule and alter the boundaries of the law in inappropriate or unfair ways. Relying on this analysis, the Article finally proposes — the third original contribution — a better-informed approach to the writing of examples in tax regulations.

Explaining Choice-of-Entity Decisions by Silicon Valley Start-Ups

Perhaps the most fundamental role of a business tax advisor is to recommend the optimal entity choice for nascent business enterprises. Nevertheless, even in 2018, the choice-of-entity analysis remains highly muddled. Most tax practitioners across the United States consistently recommend flow-through entities, such as LLCs and S corporations, to their clients. In contrast, a discrete group of highly sophisticated tax professionals, those who advise start-ups in Silicon Valley and other hotbeds of start-up activity, prefer C corporations. Prior commentary has described and tried to explain this paradox without finding an adequate explanation. These commentators have noted a host of superficially plausible explanations, all of which they ultimately conclude are not wholly persuasive. The puzzle therefore remains. This article attempts to finally solve the puzzle by examining two factors that have been either vastly underappreciated or completely ignored in the existing literature. First, while previous commentators have briefly noted that flow-through structures are more complex and administratively burdensome, they did not fully appreciate the source, nature, and extent of these problems. In the unique start-up context, the complications of flow-through structures are exponentially more problematic, to the point where widespread adoption of flow-throughs is practically infeasible. Second, the literature has not appreciated the effect of perplexing, yet pervasive, tax asset valuation problems in the public company context. The conventional wisdom is that tax assets are ignored or severely undervalued in public company stock valuations. In theory, the most significant theoretical benefit of flow-through status for start-ups is that it can result in the creation of valuable tax assets upon exit. However, the conventional wisdom makes this moot when the exit is through an initial public offering or sale to a public company, which are the desired types of exits for Silicon Valley start-ups. Thus, the most significant benefit of using a flow-through (at least in theory) is eliminated because of the tax asset pricing problem. Accordingly, while the costs of flow-through structures are far larger than have been appreciated, the benefits of these structures are much smaller than they appear.

Professional repositioning during times of institutional change: The case of tax practitioners and changing moral boundaries

Recent work has called for more research to be carried out exploring how professional projects develop in conjunction with wider processes of institutional change. We respond to these calls here by analysing the way in which tax professionals have responded to a major disruption at the field level. The Organization for Economic Co-operation and Development's action plan on Base Erosion and Profit Shifting has proposed far reaching reforms in an attempt to bring corporate tax practice into line with changing moral boundaries in society. Through a combination of documentary analysis, participant observation and qualitative interviews, this paper shows how tax professionals negotiate changing moral imperatives. In doing so, the paper enhances our understanding of tax practice and contributes to extant literature on professionalization and institutional change in three principal ways. Firstly, we show how exogenous field-level changes afford professional groups opportunities for strategic repositioning. Secondly, we illustrate how different professional factions are differentially affected by processes of institutional change, distinguishing between in-house tax professionals and those working in public practice. Thirdly, we demonstrate how this strategic repositioning is made possible by the skillful deployment of the technical-cognitive resources of professional groups.

Investing with One Hand Tied Behind Your Back An Australian Perspective on United States Tax Rules for Non-Resident Citizens

The United States is unique in taxing non-resident citizens under the same rules as residents. For Australian citizens and residents who are also US taxpayers, the impact of this is much greater than the generally minimal amount of US tax due each year. The US grants citizenship broadly and makes it difficult and expensive to cleanly exit the US tax system. Planning one’s tax affairs under two very different tax systems is complex and often results in sub-optimal financial outcomes. Australian citizens and permanent residents who are required to file US tax returns will find it more difficult to effectively save for retirement than their peers, and will be more likely to rely on the Australian government’s social safety net in their later years. The US tax code significantly discriminates against many non-US investments and business structures, which constrains the options of affected Australian-resident taxpayers, many of whom are also Australian citizens. The treatment of Australian superannuation on a US tax return is the subject of some disagreement among tax professionals. Australian investment opportunities outside of superannuation are also limited for US taxpayers. Australian managed funds are punitively taxed under the Passive Foreign Investment Company (PFIC) rules. For entrepreneurs and small business owners, the US tax treatment of “foreign” corporations owned or controlled by a US person can unravel any Australian tax advantages. Family trust structures often recommended for asset protection and tax planning purposes in Australia would likely be treated as disregarded entities on a US tax return. Finally, US law may make it difficult for non-resident US citizens to open financial accounts in the US making it difficult to avoid the punitive US tax treatment of Australian investments. Although this paper focuses on Australia and the interplay between US and Australian tax rules, the issues raised are broadly applicable to US citizens residing anywhere outside of the US.

The Cost of Trust: A Pilot Study

Trust is a fundamental precondition underpinning exchange and economic coordination between heterogeneous agents, but is costly to maintain. Given the potential for agents to enjoy zero-sum gains by opportunistically betraying the trust of exchanging counterparties, an edifice of occupational roles, organisational forms and institutional practices have emerged in an effort to uphold trustworthy behaviour and conduct. In simple terms, there exists a “cost of trust” and this cost is non-trivial for a highly specialised economy operating at an increasingly global scale. This paper provides numerical estimates of the cost of trust for the United States economy, based on an attribution of labour force occupational data with varying degrees of trust-maintenance. Occupations which are represented in high cost-of-trust activities include managers, lawyers and judges, tax professionals, accountants and auditors. Overall, it is estimated that the cost of trust accounts for 35 per cent of U.S. employment in 2010. The cost of trust has significant implications for the economic applicability of distributed ledger technologies, such as blockchain, compared with conventional forms of ledger technology largely maintained by centralised third-party organisations.

Discussion on the Development of Artificial Intelligence in Taxation

With the development of AI technology, a new forecasting and statistical model for tax auditing has been created. In recent years, thanks to breakthroughs in AI research, tax professionals have gained new analytical and statistical tools, providing convenience and improving efficiency. These tools have formed the basis for systematic frameworks that avoid the disorder and complexity of data processing and analysis in Excel spreadsheets. Additionally, AI provides simulated tax risks, which can help more complex human judgments to be made. AI can also aid detection of fraud, contributing to its supervision and monitoring by government. The development of AI continues, and its deployment has certain limits and risks that must be recognized.

Working with the Tax Profession

Australia is fortunate to have a tax compliance culture where the majority of taxpayers, many supported by tax professionals, voluntarily comply with their tax obligations. Given the vital role played by the tax profession in influencing levels of voluntary compliance and in facilitating efficient transactions with the Tax Office, it is essential that the tax profession is capable and well regulated. This can best be achieved through an effective commitment between the Tax Office, tax professionals and the Tax Agents' Boards. I see it as a true tripartite arrangement, where each party complements the others.