Question

Ahi Corporation is one of your clients in Hawaii. The company owes the IRS $100 million, due on March 15. There are no penalties or interest assessed by the IRS. One of Ahi s employees approaches you with the following plan to benefit from the so-called float on the large payment to the government. First, Ahi Corp. will courier its tax return and payment to the U.S. Virgin Islands. There, the tax return will be mailed to the IRS Service Center in Fresno by certified mail on the return s due date, March 15. By doing this, the employee thinks it will take at least six days for the tax return to reach the IRS and for them to cash the $100 million check. Ahi can earn 3 percent after tax on its money, so the interest earned during these six days because of the float is $8,219 per day [($100,000,000 .03/365 days]. Thus, the total interest earned on the float for six days would be $49,314 ($8,219 6 days).

a. Would you recommend Ahi complete this transaction?

b. What potential ethics issues do you see in this situation?

Answer 1

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Answer:

(a)

In banking, a float is the time between the deposit of a check and actual payment by the check writer’s bank” (Schmidt,2016). Floats are legal, but for a certain time lapse, as technology have increased the float times on checks. The deliberate courier service of having the check mailed from the U.S. Virgin Islands instead of the corporate location of Hawaii is the main issue that concerns me with this case. So, No, I would not recommend that Ahi complete this transaction

(b)

Ethical issue that is found in the case is that of morality. Webster defines moral as, “concerning or relating to what is right and wrong in human behavior” (Merriam-Webster Incorporated, 2016). In this case it appears to be a form
of cheating and the issue becomes that of is cheating a little considered moral and cheating a lot considered unethical. Many have reasoned with this train of thought and it is ultimately up to the individual as to what is morally correct or not. “The tax practitioner must be ready to work with clients holding various systems of morality and to accept the consequences of the moral choices made, including the possibility of losing a client, paying fines and penalties to the IRS, or even going to jail” (Sawyer, Raabe, Whittenburg, & Gill, 2015). Circular 230states that one should not advise a client to submit something to the IRS when “the purpose of which is to delay or impede the administration of the federal tax laws” (Sawyers, Raabe, Whittenburg, & Gill, 2015, p. 14). Although this is not necessarily impeding the administration of federal tax laws, it is delaying it.