Tax Law 101: The Basics of Tax Law
Tax law is one of the most complex areas of the law because there are so many different caveats, situational decisions, and judgment calls. The tax code is thousands of pages long so it is very hard for one person to master everything. In any case, there are a few important principles of tax law that all filers should be aware of. These will help you stay out of jail, even if a tax adjustment or fine is required. Tax attorneys can help craft legal defenses and provide a ruling on a tax choice. However, the ultimate decision is left to the filer themselves.
Doctoring Documents
Of course, all documents must be authentic. Many companies have been caught changing the dates of investment agreements to achieve a capital gains tax benefit or to price an option to create an artificial tax loss. Of course, more pedestrian fraudulent expenses and fees are also prohibited. Companies must be sure that none of the documents they submit to the IRS are inauthentic.
Signed by CFO/CEO and a Partner at an Accredited Accounting Firm
In the wake of scandals including Enron, Worldcom, and others at the beginning of the century, Congress mandated that the CFO and/or CEO of the company personally sign an accounting statement attesting to its veracity. Similarly, an external partner at an accredited accounting firm such as a Big 4 firm provides a lot of credibility. Best of all, it provides a measure of legal protection because it is an outsider confirming the accuracy of the statements.
Inventory
The status and valuation of inventory is often a contentious issue. Make sure that how you value is easy to understand and clear in advance of the quarter that it is used. Otherwise, it may seem as though you are trying to manipulate this number to alter tax consequences.
Reporting on Time
Last but not least, remembering to file on time is important to stay on the right side of the law. If it is not possible, remember to file the necessary extension forms. Without these, it may seem like you are intentionally seeking to evade filling.
