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Case Analysis for Chapter 3, Case Number 3-5 Irs Whistleblower and Informing on Tax Cheats

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Case Analysis for Chapter 3, Case Number 3-5
IRS Whistleblower and Informing on Tax Cheats

1. The ethical issue in this case is

Wall Street insider Mr. ABC disclosed the information of Illinois Tool Works Inc. (ITW) tax fraud to IRS and received a whistleblowing award of $2 million.

2. The accounting issue involved is

ITW enlisted a Swiss bank to fabricate unauthorized tax deductions in order for ITW (bank’s client) to claim the same deductions as an offset to ITW’s otherwise taxable income.

3. The incorrect or improper action taken in this case was

ITW conducted illegal tax avoidance by involving a Swiss bank to fabricate unauthorized tax deductions by duplicating same deductions for both of them.

4. The correct or proper action that should have been taken is

ITW should have followed GAAP and related regulations to not duplicate tax deductions and avoid tax legally.

5. Answers to case questions:

5.1 Should we regard Mr. ABC as a new “caped crusader” or an opportunist? Explain the reasons for your response.

In my opinion, Mr. ABC should be regarded as a “caped crusader”. As a Wall Street insider, he has a moral sensitivity that “it was just a fake deduction scheme”. His motivation is to criticize the government’s ability to identify and investigate sophisticated tax shelters. He took the ethical action to expose the fact to IRS. I don’t think Mr. ABC is an opportunist, who is totally self-centered and only took advantage.
He has already gained over 2 million awards from first two whistleblowing, so it’s very unlikely he did it again just for monetary rewards. It is his intention to act ethically and maintain the order.

5.2 Is it ethical for a Wall Street insider to analyze financial data of an unrelated company in order to identify corporate wrongdoing, report it to the appropriate authorities and then receive a

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