Tax Accounting II Case Essay Example | Topics and Well Written Essays - 500 words

Tax Accounting II Case - Essay Example Schneider as his tax professional in the latest filing of his income tax returns.1 The accountant may be considered to have knowledge of things done in the past about deducting the cost of artwork as part of deductible expenses. As to whether there could be tax assessment by IRS because of possibly underreported income due to higher reported expenses in the past, the same should be viewed as tax avoidance because there was really no intention to avoid or cheat on taxes. Moreover, it could be inferred from the case fact that claiming the cost of artworks as deductible business expense is allowed if treated or given as a kind of employee compensation.2 The difference between tax avoidance and tax evasion is that the former is legal as a way to reduce tax but the latter is against the law because there is an intention to defraud the government for the correct payment of taxes. In the case of Mr. Conor, he did not intend not to pay taxes, he claimed in good faith the cost artwork as business expense with the presumed knowledge of the accountant although the latter failed to object in previous years. In tax avoidance, which is a legitimate minimizing of taxes, the taxpayer should use methods approved by the IRS.3 Mr. Conor was only lacking in knowledge of method on how deduction could be made legitimate. Thus his CPA said that expense is allowed if given as employee compensation. It would have been tax evasion if Mr. Conor was not allowed at all to have claimed as expense the cost of artworks. The same would amount to reporting expenses that are not allowed and thereby understating income and the related tax. The fact also that half of the cost of artwork was now claimed in the latest tax return with the consent of the CPA should support the argument that the method used earlier was an allowed by and therefore a tax avoidance was more applicable than tax evasion.4 This researcher views that Mr. Schneider has not fully complied with the professional norms of

The Credit Crunch Literature review Example | Topics and Well Written Essays - 1000 words

The Credit Crunch - Literature review Example Due to its major significance, the term was included in the latest edition of the Concise Oxford English Dictionary, meaning "an economic condition in which it suddenly becomes difficult and expensive to borrow money" (Oxford University Press,n.d.). A credit crunch is characterized by a shortage of funds in the credit market, resulting in decreased possibilities for credit agreements and increased levels of official interest rates. Economist John Hull (2009) argues that the origins of the credit crunch (which started in the US) can be found in the housing market. "The U.S government was keen to encourage home ownership. Interest rates were low. Mortgage brokers and mortgage lenders found it attractive to do more business by relaxing their lending standards () Banks thought the "good times" would continue and () chose to ignore the housing bubble..." Simply put, people were spending more money than they actually had - an inconsistency that grows into what economists call a "bubble" - the inflation of global property prices. A vicious circle is formed - prices rise, causing the number of credits to rise as well, which in turn makes prices rise even more. At some point, a large number of credits started to default. Property prices began to drop and so the "bubble" burst. On a related note, Mizen (2008, p. 564) points out that the most recent credit crunch was preceded by a prosperous period, which generated a certain degree of carelessness throughout the economy. "Financial innovation had () introduced greater complexity, higher leverage, and weaker underlying assets based on subprime mortgages." Mizen defines a subprime mortgage as a riskier bank product - a loan given to a person with non-standard income or credit profile, which was often mispriced. They provide good returns, compared to other asset classes, and therefore receive high ratings. However, they are not as safe as they seemed because they are tied to house prices. When prices drop, foreclosures becom e more frequent. Losses escalated and banks took measures by lowering credit availability. White (2008, p. 2-3) states that "Borrowers with inadequate income relative to their debts, many of whom had either counted on being able to borrow against a higher house value in the future in order to help them meet their monthly mortgage payments, or on being able to "flip" the property at a price that would more than repay their mortgage, began to default. Default rates on nonprime mortgages rose to unexpected highs. The high risk on the mortgages came back to bite mortgage holders, the financial institutions to whom the monthly payments were owed. Financial institutions that had stocked up on junk mortgages and junk-mortgage-backed securities found their stock prices dropping. The worst cases, like Countrywide Financial, the investment banks Lehman Brothers and Merrill Lynch, and the government-sponsored mortgage purchasers Fannie Mae and Freddie Mac, went broke or had to find a last-minu te purchaser to avoid bankruptcy."