2024 – 1 day ago Katherine Williams RE Question 5 Collapse Top of Form

  

 

1 day ago 

Katherine Williams 

RE: Question 5

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Question 5: Taxation has a lot of grey areas that can be taken advantage of by taxpayers. The Bible discusses the importance of honesty and integrity. Specifically, in what ways can tax preparers use Biblical principles to guide their clients using the characteristics of honesty and integrity?

As a tax preparer, you have a fiduciary, duty to the client to maximize their return.  Obviously, violating the law is unacceptable, regardless of one’s religious beliefs.  As Christians we are instructed to conduct ourselves with integrity. Romans 8:9 commands us “You, however, are not in the realm of the flesh but are in the realm of the Spirit, if indeed the Spirit of God lives in you. And if anyone does not have the Spirit of Christ, they do not belong to Christ.”  We are directed to not only know God’s commands, but to live them out every day.  James 1:22 tell us “Do not merely listen to the word, and so deceive yourselves. Do what it says.”  We are also called to submit to earthly authority, Romans 13:1-2 says “Let everyone be subject to the governing authorities, for there is no authority except that which God has established. The authorities that exist have been established by God.  Consequently, whoever rebels against the authority is rebelling against what God has instituted, and those who do so will bring judgment on themselves.”  Part of that submission involves paying taxes, as Romans 13: 5-7  say “Therefore, it is necessary to submit to the authorities, not only because of possible punishment but also as a matter of conscience.  This is also why you pay taxes, for the authorities are God’s servants, who give their full time to governing. Give to everyone what you owe them: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor.”

In my opinion, it is a tax preparers job to maximize the return for the client, so without specifically discussing what the “grey areas” are it is hard to make a judgment call.  As a general rule, if it is legal, and the client is comfortable we would maximize their return.  The way I see it, trying to determine what the ‘grey areas’ are OK, is a slippery slope, and nothing more than opinion.   One ‘grey area’ I could think of is that the  “Tax Credit for Child and Dependent Care Expenses” does not have an income cap.  If a family made $5 million dollars of income they could still claim a $600 per child credit if both spouses worked.  Some people would argue that claiming this credit is ethically questionable, because it is designed to help lower income families.  They would further argue that a family making millions does not need more money from the government that could help those who are struggling.  While I would agree with all the points above, the fact is we did not make the rules.  There is nothing wrong with maximizing the return if it does not violate the law.  Absent a specific example, I stand by this argument.  A possible ‘grey area’ I personally experienced was when my husband and I were in New York with the military.  I had a job in the local economy, and because of the high state / city income taxes and the cost of living, was paid very well.  However, because I was a military spouse, I did not have to pay the State and City tax.  Further, we lived in military housing, and could shop at the commissary so we were insulated from most of the local cost of living.  We used the local parks, libraries, and public transportation that the taxes paid for, but we did not pay into them.  I could have paid New York (4.5%) and New York City (2.9%) income tax, instead I opted to pay Colorado income tax (4.6%).  Some would argue I should have paid NYC tax.  I used the services those taxes paid for, I was shielded from most of the high cost of living, and my husbands income more than covered our needs, my job was just for extra saving.

The problem with expecting people to make ethical decisions is that ethics are mostly a matter of opinion. What one person finds as perfectly acceptable way to minimize their tax burden another review is taking advantage of the system and using a loophole. In “Do Ethics Matter? Tax Compliance and Morality.” the authors argue “there is much direct and indirect evidence – theoretical, experimental, and empirical – that ethics differ across individuals and that these differences matter in significant ways for their compliance decisions” (Alm, Torgler, 2011). We are called to submit to authority, both spiritual and worldly.  “Remind them to be subject to rulers, to authorities, to be obedient, to be ready for every good deed, to malign no one, to be peaceable, gentle, showing every consideration for all men. For we also once were foolish ourselves, disobedient, deceived, enslaved to various lusts and pleasures, spending our life in malice and envy, hateful, hating one another.” (Titus 3:1-3 NIV)  There are no simple answers or quick one-liners about how a Christian should follow their religious beliefs in the secular practice at paying taxes.

 
 

Reference List

Alm, James; Torgler, Benno. (July 2011).  Journal of Business Ethics. Do Ethics Matter? Tax

Compliance and Morality. Vol. 101 Issue 4, p635-651, 17p; DOI:

10.1007/s10551-011-0761-9, Database: OmniFile Full Text Select (H.W. Wilson).

Holy Bible. 

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7 days ago 

Joshua Turner 

RE: Question 2

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Question 2: Some family members have net losses from gambling while another family member has a substantial gain from winning the lottery. You know that the family members are going to give the losing tickets to the winning family member. How would you handle the client if they insisted on taking the deduction? 

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This is a tricky question because we are dealing with laws and potentially breaking them.  However, if the client is insistent on giving the losses to the winner so it will lower the lottery winnings therefore lowering the taxes needed to be paid on it.  You don’t want to lose a client but you also want to follow the IRS and the law.  I would explain that upon winning the lottery the person who won should have received Form W-2G. (About)  On this form, it states the payer’s name, address, type of wager, federal tax withheld and most importantly the earnings.  It also states the winner’s name, address, SSN, etc.  Now Turbo Tax explains, “All winnings over $5,000 are subject to tax withholding by lottery agencies at the rate of 25%.” (Tax)  Now this tax from the lottery agency is not including the amount of additional tax for your current tax bracket.  Now depending on how the winnings are payed out you might get taxed at a lower amount because the payments will be coming over a series of years rather than a lump sum.  I would go on and continue to explain that a loss from Casino A for Mr. X cannot be given to Mrs. X to be utilized in the lowering of the tax bracket for Mrs. X winnings. They are many different transactions that occur through the process. This is reportable income and in comparison, one would not let their spouse or dependent “borrow” income from the W2 they received from their employer to lower the taxes needed to be paid. There really is no difference in the eyes of the IRS – taxable money is taxable money. Although it is true that you can deduct losses you would have had to keep track in a diary of some sort or other record and you also would have to provide receipts, statements or other documentation showing both winnings and losses. They should contain some sort of identification on who lost the money (name, SSN, etc…). In the event of an audit by the IRS the earnings/loss statements need to match up.  It could be harmful if an audit was done on the above-mentioned Mrs. X and her W2-G stated she won $20,000 but was only paying taxes on $17,500 because she declared $2,500 in gambling losses but those losses were address to Mr. X. It should be mentioned, though, that If Mrs. X had her own set of gambling losses she COULD declare those, but only up to the amount she has won.

If the client still insisted that they take the deduction I would personally withdraw and lose the client.  Personally, I would rather lose a client over my job.  There will always be new clients that need help, but without the ability to work I will not be able to help anyone.  This can be shown in the Bible as well using Romans 2:13.  This verse talks about  how those who choose to obey the law will be rewarded, while those who know the law and choose to disobey it will be punished. 

Reference:

About Form W-2G, Certain Gambling Winnings. (2017, November 8). Retrieved November 09, 2017, from https://www.irs.gov/forms-pubs/about-form-w2g

Tax, T. %. (2017). Tallying Up the Taxes of Powerball Winnings. Retrieved November 09, 2017, from https://turbotax.intuit.com/tax-tips/fun-facts/tallying-up-the-taxes-of-powerball-winnings/L7Phwt1yr

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