Shifty Industries is a small business that sells home beauty products in the San Luis Obispo, California,
area. The company has experienced a cash crunch and is unable to pay its bills on a timely basis. A great
deal of pressure exists to minimize cash outflows such as income tax payments to the Internal Revenue
Service (IRS) by interpreting income tax regulations as liberally as possible.
You are the tax accountant and a CPA working at the company and you report to the tax manager. He
reports to the controller. You are concerned about the fact that your supervisor has asked you to go along
with an improper Page 57treatment of section 179 depreciation on the 2015 tax return so you can deduct
the $100,000 full cost of eligible equipment against taxable income. The problem as you see it is the 2014
limitation of $500,000, which would have been fine for 2015 had Congress extended it, was rolled back to
a maximum of $25,000. Therefore, your supervisor is planning to allow Shifty to deduct $75,000 more than
allowed by law. Using a 35 percent tax rate it means the company is “increasing” its cash flow by $26,250.
Answer the following questions to prepare for a meeting you will have tomorrow morning with the tax
manager.
Questions
1.What values are most important to you in deciding on a course of action? Why?
2.Who are the stakeholders in this case and how might they be affected by your course of action?
3.What would you do and why, assuming your approach will be based on the application of the
ethical reasoning methods discussed in the chapter?
Sample Solution