Emerging Legal issues of Tax compliance of e-business Self-assessment system relies on taxpayers voluntarily meeting their tax obligations by tax payee. This concept is recognised in all tax statutes, which sets out taxpayers’ primary obligations to fill tax return on self-assessment, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time. Disclosure in this context is introduced for two main purposes. First, it is necessary to provide information for audit selection. Secondly, disclosure is relevant for the purposes of the abatement of penalties. Taxpayers have a statutory obligation to disclose to the Commissioner in a timely and useful way all information required to be disclosed under the tax laws. Disclosure here covers items specifically required to be disclosed by statute, and items for which disclosure is required by the Central Board of Revenue Department.

For income tax, under section 26 of sale tax act 1990 and 114 of income tax ordinance 2001, the departments requires a complete statement of the taxable income of the taxpayer for the preceding year, together with such other particulars as may be prescribed. The department’s disclosure expectations cover any requirements set out in a particular tax return, in the guide accompanying a particular tax return, or matters for which a specific disclosure form is prescribed. In the area of tax returns and compliance, electronic commerce has created new variations on old legal issues as well as new categories of legal issues. These developments require that practical techniques be employed to deal with these technological innovations. These technological developments touch on a wide range of legal issues affecting the filing of tax returns to audit selection.

The filing of tax return of e-business and furnishing evidence Electronic commerce is still developing and no electronic money system has yet achieved widespread usage. Nevertheless, it is important to consider these issues now since some issues may require that the needs of filing and providing of tax returns be considered tax returns of electronic commerce be modernized while electronic commerce systems are still under development, and related issues of the filing of tax return of e-business and furnishing evidence be also taken into consideration. Electronic commerce on the web can actually facilitate compliance with consumer disclosure requirements.

Identity of person liable to file returns A New Yorker cartoon once published two dogs sitting in front of a computer with a symbol on the Internet; nobody knows rather they are a dog or any other creature. Tax administrators face a similar issue. Under clause (a) subsection 1 of section 114 of Income tax Ordinance 2001 has make it obligatory on every person and company regarding filing of the tax return,”subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely (a)Every company and any other person whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;”

Similar type of tax provision is available in section 26 of Sale Tax Act 1990 has make it obligatory on every person and company regarding filing of the monthly tax return,”Every registered person shall furnish not later than the due date a true and correct return in the prescribed form to a designated bank specified by the Board, indicating the purchases and the supplies made during a tax period, the tax due and paid and such other information, as may be prescribed”

Under section 26AA of Sale Tax Act 1990 has make it obligatory on every person and company regarding filing of the Retail tax return, “Every person required to pay turnover tax shall furnish a true and correct return in the prescribed form to the Office of the Collector having jurisdiction indicating the value of supplies made in tax period, the tax paid and such other information as may be prescribed.”

Identification of the parties to a transaction is a necessary first step in determining what the tax liability is for the transaction and who is liable for any tax payable. In relation to e-commerce, special difficulties are encountered. Where any business transaction is done through an e-page, the tax authorities must be technological capable enough to link the website with the “real world” physical parties behind it. An e-page can easily conceal the true identity of the person benefiting from any business it does.

On the Internet it is too easy to use a false identity and it is not currently feasible for tax authorities to independently verify a party’s identity. This raises a number of legal issues because the identity of counterparty is important for numerous tax provisions. Similarly, unless tax administrations actively look for signs that existing businesses are involved in e-commerce the existence of a website and parties to transaction could remain undetected. Furthermore, websites can quite easily be set up offshore or offshore websites can “front” onshore business. It is imperative for CBR to encourage voluntary disclosure of websites used as part of the selling and, possibly, distribution functions of a business. As a modest first step, tax forms will need to be changed to ask about e-commerce and to get information about browsing address of e-page of any business selling on the internet.

Finally, how the tax returns and other documents are to be attached as provided in tax provisions, I have disclosed this issue in chapter on “e-record and booking keeping”. Electronic cash and bank secrecy The developments in electronic payment systems have the potential to create “electronic money.” Electronic money is a broad term, and just as electronic money systems differ in their technical features and it is also differ in the extent to which they create legal issues for tax returns. Depending on the type of system used, electronic money can caused various obstacles in way of compliance and it has an advantage or a disadvantage for collection of taxation. The use of electronic cash as a means of transacting internet business has been legalized by various state as an acceptable alternative to credit card payments.

“The use of digital or electronic cash in e-commerce transactions could lead to difficulties for Revenue auditors. Revenue auditors have traditionally had to grapple with the lack of controls associated with the cash economy. The increasing sophistication of business transactions and the development of a variety of payment methods have meant that cash payments have become a diminishing feature of business transactions.” The electronic money poses serious threat to a tax evasion potential comparative to that created by paper money. This raises the issue of whether the evasion potential is manageable and what must be done to manage it. It is possible that the techniques that have been developed over time to combat tax evasion using paper money may not be workable combat evasion through electronic money. The Electronic money has made easy to deposit unreported income in a bank or other financial institution with fraction of time.

As a result of electronic money’s facility in transmitting large amounts of money with relative ease across the border, combined with the continued use of e-cash, the legal issues of an underground and unaccounted economy is likely to be exacerbated. Electronic money and the Internet substantially has increased the opportunities to open bank accounts, letterbox companies and trust accounts can be established abroad with relative ease and safety, and money can be transmitted anonymously. Such accounts are, of course, causing providing opportunity for tax evasion of home state by taking harbor in zero tax states.

Verification of identity and attached documents Verification of identity is also a problem for tax authorities, who want to be assured that the persons with whom they do business are who they claim to be . As a result, companies engaged in electronic commerce are developing “digital certificates” or “digital IDs” that can be used to verify a person’s identity over the Internet ; and “Digital certificates” are issued by a trusted legal intermediary authorities who verifies the identity and documents of a tax payer and performs appropriate background checks, depending on the level of assurance to be granted. The simplest level verification granted by these is that an e-mail message was sent from an indicated address. The next level verifies the digital ID holder through online identity verification against a consumer database when time and place of e-transaction conducted by purchasers. The highest level verification is that the holder personally appears before a notary public to have a digital ID application notarized of digital document evidence after converting into paper base form. Once a person’s identity has been verified, the certificate is created using public key encryption techniques, which makes it independently verifiable by the recipient and Immune from tampering it.

Providing evidence of record Under clause (a), (b) (c) (d) subsection 2 of section 114 of Income tax Ordinance 2001 has make it obligatory on every person and company regarding providing evidence of the records,

“A return of income (a) shall be in the prescribed form; (b) shall state the information required by the form, including a declaration of the records kept by the taxpayer; (c) in the case of a person carrying on a business, shall include an income statement, balance sheet, and any other document as may be prescribed for the tax year; and (d) shall be signed by the person or the person’s representative.”

The validation of the details of any business transaction requires an ability to follow a similar audit trail as that which exists for conventional commerce. The following elements must therefore be present- access to the basic records related to a transaction must be available; and the integrity of those records must be authenticated. Taxpayers are required to keep accurate books and records , which are subject to examination by the income tax authorities in order to verify the income and expenses reported on the taxpayer’s return.

“Although many taxpayers rely on computerized record keeping systems to a large extent, many transactions still originate as paper records which can be used to verify the accuracy of the electronic records. However, for taxpayers engaged in the sale of electronic goods or services, no paper records are likely to be created because customer orders are placed and fulfilled electronically and therefore the only record that exists of these transactions could be an electronic one. As all users of computers know, this creates the possibility for tax evasion and fraud because computerized records can be altered without a trace.”

The “digital notarization” has been introduced in much state. This system has been developed which are intended to make it possible to verify that electronic documents and records have not been altered. Public key encryption scientific technique also permits a taxpayer to encrypt his financial records to prevent their examination on audit for evasion of taxation . It would seem that this should be treated no differently from failing to keep or destroying e-records because it is possible to alter or destroy it within fraction of time. Even taxpayers engaged in the sale of physical, as opposed to electronic, goods may soon receive orders and issue invoices electronically. Electronic “documents” must be verifiable by scientific legal authorities in order to minimize the potential for tax evasion.

Getting extrinsic aid in statutory construction The following extrinsic aid can assist us to erection of the legislative construction.

Existing provisions of tax returns

There is no existing tax provision for the tax compliance of e-business of every person and company whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year ;” Like income tax returns similar tax provision are available in sale tax and also in central excise duties

Defining evidential parameters

How we can maintain record and production of record can be placed before the court for adjudication of taxes disputes. I recommend that such a review should be undertaken at the same time as the review of return filing obligations. I also consider that if record-keeping requirements are increased, taxpayers should receive some education on the necessity for those requirements. To help in this matter, that is also noted that it would be eminently worthwhile to encourage taxpayers on their own initiative to maintain e-record relevant information considered by them in adopting a particular tax position.

Proposals for legislative construction

I recommends that section 114 of income tax ordinance 2001 and section 26 of sale tax act 1990, which states that taxpayers must disclose to the Commissioner in a timely and useful way all information required to be disclosed under the tax laws, should be amended to identify the different categories of required disclosures: information specifically required by statute, information required by the department in a prescribed form, and information requested by the department from specific taxpayers.

Generally, apart from required disclosures, taxpayers are not obliged to disclose information, but anything that is disclosed must not be misleading. Sanctions may be imposed for deliberately misleading disclosures, and taxpayers open themselves up to the risk that a deliberately misleading disclosure could suggest tax evasion on their part. Intent to evade may also be inferred from a failure to disclose relevant information regarding e-commerce transaction to the tax authorities. The risk also arises that defaults of this nature may preclude the application of a time bar.

E- filing of tax returns

No online e-filing of the tax return has yet been introduced in Pakistan. This modern device are used to encourage e-filing of tax returns in other words online tax returns but there are many problems are associated with e-filing of the tax returns. The electronic filing of the tax returns provide room for unauthorized users and unknown person filing of tax returns and attachment of documents as evidence often create more problems instead of increasing tax compliance turn over of the taxpayers.

Even for required disclosures, some real issues arise, including the way in which the obligations to disclose are affected by e-filing procedures, and the use of e-filing under self-assessment. It is sufficient that the information is on the taxpayer’s own files and available for examination by the department. This acceptance leaves open, however, whether, and to what extent, availability must be within a reasonable proximity to the taxpayer’s own tax-file. Clearly, that taxpayers and their advisers consider they may have to act in this way is unsatisfactory, as it defeats the benefits in efficiency contemplated by self assessment-filing.

Amending tax Statutes

My recommendations are that the phrase ‘prescribed form’ defined in sale tax, need further strict construction by additional statutory clauses defining the types of prescribed forms that have been made available for the taxpayer for filing of their tax returns. The similar strict construction of statute is required in Income Tax Ordinance 2001 by specifically defining the methods of filing returns.

Conclusion

It here concluded that Central Board of Revenue should prepare and send out to taxpayers guiding leaflet, or where appropriate their agents, forms which guide them through their key tax activities, and also act as a record for audit purposes. In forwarding the forms to taxpayers, the government must reconstruct the existing tax statutes to place the electronic taxable activities in consistent with above mentioned recommendations.

The writer is an advocate of High Court and practicing immigration and corporate laws in Pakistan since September 2001. Author can be contacted by Adil Law Company (Advocates and Immigration lawyers) Office No.3 2nd Flr Hafeez Chambers 85 The Mall Rd Lahore Pakistan Telephone: +9242-6306195 +9242- 6360108 Fax: + 9242 6360108 Cell: +92300 4254910 E-mail: adil.waseem@lawyer.com

Tax season always brings out talk about 1040 EZ forms and W-2s, but most of us are in the dark about what to do with our tax returns even with the long set of directions the IRS puts in with the forms. There is always the option of paying someone else to take care of it, and for many people it is best option. However, most people feel it is a little strange to pay someone to get their money back so they struggle through it on their own. If you worked at only one company and no deductions or supplemental income filling out your taxes is relatively simple, but this is not the case for most people. Most people have numerous deductions, credits, and supplemental income that require extra work when filing out a tax return. While filing out your tax return may not be the most fun thing to do, there are a few precautions that should be taken to avoid extra problems later on.

Check W-2 and 1099 Forms

W-2s and 1099 forms report the income of a taxpayer. The taxpayer receives a copy of this form, but that is not the only place these forms are sent. Companies and employers are also required to submit these forms to the IRS. When you receive your W-2 or 1099 it is important to check the numbers against your own records and make sure they are correct. You will need to inform your employer so that they can change the information with the IRS. If this is not done and there are discrepancies between the information the government has and the information you report, it could cause a lot of problems later on.

Dot your T’s

When paying for taxes you owe make sure that you make the check out to the United States Treasury. Writing it out to the United States Treasury instead of the IRS makes it harder for the check to be used by a thief who can easily change the To: line. The second common mistake with paying taxes is simple enough to avoid: always double check that you have signed it.

E-File

If you are worried about mistakes or have a difficult return, using e-file is probably the best bet. The e-file system will cut down on math mistakes and other errors. If something is left off of the return it will not file until it is fixed. The IRS also has set up a system where the return can be submitted and if there is a problem it will be returned within seventy-two hours. The taxpayer will also be notified of the problem and how to fix it. E-file is also much faster and free, so there isn’t really any reason not to use it.

Chris Simons is a prolific freelance writer. You are welcomed to visit http://tax.theconsumerguide.net, for more information on Tax Preparation.

Yes, the tax season is upon with the first filing date for
some businesses being March 15, 2005. If you can’t imagine
getting your tax returns together by that date, you need not
worry. The IRS automatically gives you an extension if your
file the appropriate form. As you might expect, there are
different forms for different businesses.

An Important Note

It is vitally important that you understand that an
extension to file taxes is not an extension to PAY taxes.
The IRS will give you a break on the filing date, but it
wants the money now! If you anticipate that you will owe
taxes, you need to send in the appropriate payment. Failure
to do so could result in interest charges when you
eventually get around to filing your returns.

Corporations

If you conduct business as a corporation with a fiscal
year-end of December 31st, you are required to file your
2004 tax returns on or before March 15, 2005. You can get an
automatic extension, however, by filing form 7004 before the
March 15 deadline. Form 7004 applies both to “C” and “S”
corporations and grants you an automatic 6-month extension
to September 15, 2005.

While this automatic extension applies to “S” corporations,
you should be aware of a quirk in the tax code. Since “S”
corporations “pass through” taxes to your personal returns,
the six-month extension is really only a five-month
extension. To file your personal tax returns, you must
report information from the K-1 issued from the “S”
corporation. Unfortunately, the IRS only grants automatic
extensions for filing personal tax returns to August 15,
2005.

Limited Liability Company

The IRS has never really figured out to how to handle
limited liability companies. It has settled on a policy of
avoiding the issue and simply treating the entity as a
corporation or partnership.

Limited liability companies with more than one owner
typically elect to be treated as partnerships for tax
purposes. If this describes your situation, the LLC is
required to file tax returns by April 15, 2005. You can
obtain a 3-month extension by filing form 8736. Although
form 8736 contains language regarding partnerships, you will
still use this form since the IRS classifies you as a
partnership for tax purposes.

If you are the sole owner of an LLC, you may be in for a
surprise. The IRS doesn’t recognize LLCs owned by one
person. Instead, it simply considers you a sole proprietor
and the rules for sole proprietorships apply. These are
discussed below.

Partnership

If your business is a partnership, you are required to file
tax returns by April 15, 2005. You can use form 8736 to
obtain a 3-month extension.

Self-Employed/Sole-Proprietor

If you are not using a business entity, your business tax
information should be reported on your personal tax return.
The due date for filing your personal tax returns is April
15, 2005. You can obtain a four-month extension by filing
form 4868.

Summary

Regardless of how your business is organized, the IRS will
automatically grant you an extension to file your tax
returns. By sending in the appropriate form, you can avoid a
mad rush that will inevitably result in missing deductions
and overpaying your taxes. Just make sure you pay any taxes
you anticipate owing by the appropriate date.

Richard A. Chapo is with http://www.businesstaxrecovery.com - recovery of business taxes through tax help and tax relief. Visit http://www.businesstaxrecovery.com/articles to read more business tax articles.

Tax return is the official entry related to the financial expenses of an individual or a company in a given financial year. Any individual who has an income is supposed to pay taxes annually to the government. The amount that a person, a company or any business has to pay as the tax amount differs depending on various factors. The tax preparation season in the United States witnesses hectic activity in the office of the accountants and CPAs. Everyone wants to pay their taxes in time and become tax free as soon as possible. Tax return outsourcing is the best bet for accounting firms to deal with this heavy influx of customers during the tax paying season.

Outsourcing means to give out the work of your firm to a third party. Outsourcing is one of the most successful business processes that have been undertaken in recent times. The amount of success and profit associated with this is immense and everyday many new businesses are undertaking this process. Paying taxes in time is very important if you want to rest easy during the tax paying season. And to pay taxes in time, you need to have your tax return prepared well in advance. There is no point in rushing to your accountant’s office at the eleventh hour.

If you have an accounting firm and are looking forward to undertake tax return outsourcing, there are certain things you need to take special care of. Any individual who works in the United States of America is required to file tax returns and pay income tax by the 15th of April every year. So, your accounting firm must be prepared very well to deal with this and tax return outsourcing is the appropriate means for this. First things first, you have to find out the best outsourcing firm that will do the work for you efficiently without any fault.

Due to the advancement in the field of science and technology, communication has become very easy no matter in which corner of the globe you are in. Outsourcing work is also done using these advanced means of communication. The third party that does your tax return outsourcing work begins the work once you have provided them with all the documents containing the financial details of your customers. While transferring the financial details of your customers you have to be very careful about the security of that data. For this you will have to check out the security features that the outsourcing company has in place to protect your customer information.

While doing tax return outsourcing through a third party, you are basically handing over a very important aspect of your business to them. So it becomes all the more important for you to do this entire process systematically and in a well planned manner. The very success and failure of your business depends on the kind of outsourcing work that you undertake for your accounting firm.

Michelle Barkley is a CPA working for Ifrworld.She specializes in Accounting Outsourcing ,Bookkeeping Outsourcing and Tax Return Outsourcing. To know more and to use the services visit http://www.ifrworld.com

Preparing taxes can be quiet difficult for you, if you do not have a proper knowledge about calculation of taxes. Everyone wants to pay their taxes in time during the tax paying season in America. There are two ways of going about it. You can either get a CPA to do the work for you or you can calculate the amount you have to pay as tax yourself. Preparing your tax return online is one option that you can utilize for calculating your taxes. There are several sites on the web where you can calculate your tax return.

Calculating your tax return online can in fact turn out to be of a huge advantage for you. Filing of taxes online makes the entire process very easy for you. Everybody faces shortage of time and if you can actually prepare and file your tax returns online, this will be immensely beneficial to you. The work will be done promptly and you will have the satisfaction that all your calculations have been done properly. After all it will be you only, doing the work.

By filing your tax return online you will not have to deal with an accountant or CPA to do the work for you. The tax calculating season witnesses a heavy influx of customers to the office of their accountants and CPAs. This means that the accountants are overburdened with work related to the tax calculations and preparation of tax returns. And that is not all; you will not have to pay the accountant for calculating your tax return.

Online tax returns are processed at much faster rate then tax returns filed manually. The entire tax return is calculated automatically as you start filling up and complete the form. Also, this is convenient as you can have access to tax return online at any time of the day. So, whenever you are free you can file your taxes online anytime at your convenience. Ideally, you will not have to depend on anyone for filing your tax returns.

If you find that you are entitled to a refund from the tax department, you can get this refund very soon if you file the tax return online. Anything that is done online on the web is processed very fast as compared to the same work done manually. So, the advantages of tax return easily outnumber the advantages of filing your tax return manually. Well, you will have to actually file tax return online to get to know firsthand about all the advantages of this process.

Michelle Barkley is a CPA working for Ifrworld.She specializes in Accounting Outsourcing ,Bookkeeping Outsourcing and Tax Return Online.To know more and to use the services visit www.ifrworld.com

In elementary school, kids come up with creative excuses why they did not bring in their homework. “My dog ate it” or “It was stolen by invisible space aliens” might be given as a reason why something was not turned in on time. Don’t try those excuses with the IRS! Don’t blame divorce, business failures, or family troubles either, because except under extreme circumstances, they won’t register with the taxman.

If you have unfiled tax returns, you need to file at least the last 6-7 years. Although under law IRS could make you go back and file that return from the late 1970’s when you were a disco diva or urban cowboy, the good news is that as a matter of policy they don’t! In most cases, filing the last 6-7 years will be OK and IRS will consider you in compliance. So don’t procrastinate any further, file the returns if you made over the standard deduction and personal exemption amounts during those years or were self-employed.

People delay filing returns for 3 main reasons:

1. They are afraid or embarrassed;

2. They have lost the records or don’t know where to go to get the returns done; or

3. Some crackpot advised them income taxes are bogus and that they don’t have to file.

Don’t be afraid of filing, be afraid of what will happen if you don’t file. IRS could file for you and you might owe more than if you would have done it yourself or IRS could send somebody out looking for you. It is not a crime to owe IRS money, it can be a crime under some circumstances for not filing a tax return or a false return.

If you lost your records relax, in most case you can get all your income data from IRS so that you can prepare the tax returns. If you had deductions, you may have to dig those up and organize your records.

IRS is a legitimate government agency and they can and do enforce the laws on filing a Federal Tax Return. It sounds good when somebody says IRS is a fraud, but it is a lie. We all have to pay taxes. If you do not file, IRS can file a tax return for you. Once that happens, it is very burdensome to get corrected.

If you havent’t filed in years you can call the IRS at 1-800-829-1040 and after lots of time on hold and maybe a few transfers, you will eventually get somebody who can help you get your W2 info mailed to you. Your local library may have old tax forms and tax books to help you do the returns. You can do it yourself, but I suggest getting a professional to help you.

Don’t go to some guy or gal advertising on TV with a big company. Go to a professional person or small firm where you can talk one on one with a CPA, Enrolled Agent, or Tax Attorney. It doesn’t have to be a local person, you could hire someone across the country. With email, fax, etc. you can avoid some embarassment of going to a local tax pro if you live in a small town by hiring someone far away. But don’t hire somebody without checking them out. Read any contract they send you. Don’t part with your hard earned money unless you are sure of their qualifications.

Members of the following organizations must adhere to high ethical standards and might be a good choice for you: National Society of Accountants (NSA); National Association of Enrolled Agents (NAEA); or the American Insitute of Certified Public Accountants (AICPA). You might also look for professionals holding the Accredited Tax Preparer (ATP) or Accredited Tax Advisor (ATA) designation.

Don’t let your cousin Jimmy do your returns or that nice neighbor who says he is an expert. I have seen more screwed up returns done by friends and relatives than I care to remember. Get peace of mind, file those returns. You may owe money but you may have a refund waiting. Guess what, if you file the return more than three years after the due date; you lose the refund!

Here are some sites that can give you more info:

www.irs.gov
www.naea.org
www.nsacct.org
www.aicpa.org
www.exirsman.com

James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com