Wanda is reviewing her tax returns from the previous year and is shocked at how much tax she paid the government. She had good income but had to pay a large number of self-employment taxes on top of her normal federal and state tax liabilities. She slumps back onto the sofa and tells Cosmo, “You know, Cosmo, some days I feel like I work for nothing. The government gets to keep more of my money than I do.” He just wags his tail, thinking she is talking about how handsome he is. Wanda can’t get her tax bill off her mind and decides that she is going to handle this the way “rich people do” and start keeping two sets of books—one for her and one for the tax man. After all, since she is the sole proprietor, no one really has to know how much she really takes in from selling dog treats. She starts to plan how she is going to make this work, but as her plan comes together, she feels increasingly uncomfortable about her decision. For Discussion For Discussion 1.What are the legal and ethical consequences of Wanda keeping two sets of financial records and failing to report all of the income from Salty Pawz? 2.Even though Wanda is a sole proprietor, who else could be harmed by her actions? 3.Are there long-term problems she could be creating for herself that she doesn’t see at this point? If so, what are they?
1) For the reason proposed by Wanda to keep two sets of books of financial records, it is a crime to attempt to hide certain financial transactions by having a set of fraudulent accounting records. Engaging in accounting irregularities, such as a business’s failure to keep adequate records, or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements, generally demonstrates fraudulent intent.
2) In such cases her family is affected by it because the owner is accountable if the business runs into financial trouble, like debt or bankruptcy. The owner’s personal assets can also be at risk if a claim is made against the business – for faulty workmanship or malpractice, for instance. Creditors are also affected by such situations
3) In the long term she won’t enjoy unemployment benefits if the business suffers. Negligence cases can be brought against the sole proprietor owner and against her personal assets, such as her bank account, her retirement accounts, and even her home.