The concept of deferred compensation is an essential maneuver in order to alter the tax value. Despite the ongoing theoretical synthesis of various aspects of taxation, there is no specific and holistic concept. It uniquely describes the social role and importance as a tool of public authorities for the differentiation of incomes of the population. The initial fiscal function of the U. S. tax system shows that the hierarchy of the performance of their tasks, consistency, and attendant efficiency, surpasses the use of their social essence. It is done in order to resolve the socio-economic contradictions of modern American society. All member states have the right to ensure that everyone can participate in public life and mandatory payments.
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U.S. Tax Code and Taxation
The U.S. Tax Code contains invaluable information on the methodology of taxing deferred compensation. The employees are taxed in a delayed way, which enables them to pay taxes when they receive compensation. The application of the delayed payment requires a variety of opportunities and to ensure the viability of financial laws in accordance with the theory of economic science and financial relationships (Gorovitz, 2017). In fact, this is not quite true, because it is not always that the state has enough resources to prepare, supply, and provide relevant services necessary to ensure the functioning of the tax system. The process of deferred compensation must be completely independent, requiring the availability of appropriate financial resources, which are needed for its high-quality implementation. The state is obliged to attract third-party monetary resources, mainly in the form of tax payments, which are the private, non-state sector of the economy.
The deferred compensation can be represented as a pension fund, which can also be called delayed payments. Firstly, the given financial instruments are constructive, consistent, and depending on the degree of social development and the goals that it sets for itself. The question of the extent to which problems may exist is related to the fact that researchers of various scientific disciplines and multiple types of theoretical concepts and different authors’ approaches are involved in them. Secondly, there is a ratio of the financial interests among taxpayers and governmental units, which include people and firms (Gorovitz, 2017). Thirdly, the proportion of benefits of high- and low-income categories of the population are applied through the use of taxes as a form of resolving social contradictions.
The financial dynamics promotes obligatory payments form models of the economic behavior of different social groups at all stages of the reproduction process. The emergence of new contradictions associated with the effect of existing taxation and the search for possible ways to resolve them was caused by the need for the state to finance social expenditures. There are also needs to provide them with revenue sources and the redistribution of available resources (Gorovitz, 2017). At the same time, the main contradiction remains unresolved, where the correspondence of the remuneration of labor disappears.
The deferred compensation methodology can be used to tax the 401K savings by referring them as an asset of delayed payment. Like money and finance, taxes themselves do not distribute or control anything. For each of their functions, there is a payer, which is a legal entity or an individual who carries out appropriate actions and is guided by his preferences and interests. It also independently decides how much, when, and how to make adequate payments, control, distribution, regulation, and investment. Therefore, if 401K does not identify the object of taxation, it is impossible to organize the process of collecting taxes (Altshuler & Goodspeed, 2015). In order to effectively implement the social nature of charges in practice, it is necessary to determine the number of functions assigned to them. There is a need for the sequence of the deferred implementation in the interests of not only the entire state but also a personified payer. The priority or ranking of tax functions is related to the application of its fiscal service. The primacy is logical and undeniable because, in case of its non-fulfillment, the realization of other tasks of taxation is impossible.
Possessing the authority to tax the current 401K contributions makes it possible to outweigh the disadvantages by significant benefits. The advantageous purpose of the fiscal 401K function of taxes is to create a material basis for the functioning of public authorities through the centralized accumulation of compulsory payments in budgets of various levels. It gives the state the opportunity to carry out a wide range of financial programs and projects. In this case, 401K taxation acts as a social activity of the state, aimed at regulating the processes of distribution of the results of economic activities of legal entities and individuals. However, just the deferred primacy and focus of the fiscal function of taxes distorts the hierarchy of the 401K functions, the sequence of subordination. It prevails over the use of their social purpose and prevents the use of socio-economic contradictions of modern society as a tool for regulating.
The implementation of the deferred function of taxes in the process of accumulating compulsory 401K payments should be disclosed through their social function. The given option helps to understand the goals and objectives of tax regulations in the hierarchy of interests that the state sets itself (Altshuler & Goodspeed, 2015). In turn, the social function of taxation is aimed at the redistribution of income, as a result of which the social stratification of society, the structure of social groups, and behaviors of the population. Despite the peculiarities of neoliberal policies aimed at reducing taxes, their social function remains unchanged.
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Nonetheless, there a number of disadvantages of taxing the contribution before the process of distribution. One of the most negative side effects of the 401K tax prevention at the present stage in the field of taxation is to find the optimal ratio of its economic efficiency and social justice. The basis for the formation is the economic essence of the 401 K tax. Economic efficiency is closely related to the fiscal and deferred function of the taxation, while the social orientation of the economy is reflected in the manifestation of its social service. However, while fulfilling the delayed nature, taxes practically do not realize the compensational purpose, which has lost its true value at the present time. It is replaced by the distribution function, which through realizable tax policy partially redistributes accumulated compulsory payments from all taxpayers (Altshuler & Goodspeed, 2015). The meaning of the distribution function of taxes has not undergone any significant changes since the economists identified it as a specific function of taxes. With the strengthening of the orientation of state regulation of the economy, the role of taxes from the point of view of the redistributive aspect invariably increases.
There are plausible approaches to design an alternative way to increase fairness and support the government needs. Taxes, realizing their main function, which is providing society with financial resources for its stable development and functioning of all social institutions, should be considered as a form and method of resolving existing social contradictions. The state can redistribute the collected taxes among members of society, and direct their part to various social programs designed to stabilize the position of socially unprotected or noncompetitive categories of the population. The alternative approach can be made in order to achieve homogeneity of polarized society (Hashimzade & Myles, 2017). However, the implementation of social programs is not a function of taxes, but a function of the state. It can independently manage monetary resources accumulated not only at the expense of delayed charge but also at the cost of deferred compensation policy.
Thus, in the conditions of the reality, taxes implement only the fiscal function, which, when accumulating mandatory payments, suppresses all their other tasks that do not have a direct relationship with the implemented social programs. Therefore, do not fulfill their social purpose, whereas the alternative approach of percentage taxing can bring fairness and partially satisfy the government needs. In this regard, it is necessary to take into account what goals and objectives set by public authorities, determining the level of tax revenues in the budget system (Hashimzade & Myles, 2017). It can be done by projecting only the redistribution of monetary resources based on tax policy management. As a rule, a wide range of social programs exists in states with a high level of taxation, due to which they are implemented. At the same time, the degree of state intervention in economic processes is of great importance in the implementation of socially-oriented taxation.
IRS audit procedure can be triggered in only the severe cases of deferred compensation practices, where it borders with fraudulent activities. Taxes on delayed earnings are increasingly being used as a tool for shaping government economic and social policies. In order to trigger the IRS audit, the payer must be increasing the deference rate, reducing the compensation value, and categorizing the tax priority in the statements (Hashimzade & Myles, 2017). At the same time, globalization and internationalization of cash flow, cross-border processes of moving labor and capital markets have a great influence on the formation of accurate compensation values. There are also factors, such as the implementation of fiscal and tax policies, alongside the financing of social programs.
The main strategic approach in defending the client facing IRS challenges on deferred compensation is to address the issue in the state department and in the legislative way. The given procedure will allow the client to create a required incentive of non-fraudulence and openness. The auditing process tracks the client incentives as one of the essential determining factors for tax avoidance or simple minimization (Hashimzade & Myles, 2017). Today, one of the most actively debated issues in the IRS audit of a taxpayer is the discussion of current taxation norms in various states. The internationalization of national economies increases the mobility and accessibility of international capital markets for owners of financial resources.
It, in turn, forces state to compete for transnational investments through the provision of tax incentives. As a result, most states are forced to restructure their tax systems, optimize the tax burden in order to compete in the new global financial architecture effectively. The main approach for taxpayer’s defense is the change of the redefinition of cash flows, which can lead to a reduction in the financial capabilities of certain regulations. Ultimately, it will cause a reduction in the demands of commercial legislative programs and will adversely affect their implementation (Hashimzade & Myles, 2017). There is a danger that the mobility of capital may lead to its outflow from methods with a high level of taxation to approaches with lower tax rates on such a large scale. The IRS audit will not be able to deprive the deferred taxpayer of the tax base. However, one should not pin hopes that it is the of the given practice polarized society.
The objective that the IRS audit needs to support non-competitive categories of taxing regulations is not in doubt, but using taxes as a form of resolving legal contradictions of the modern taxpayer. It does not always correspond to the effectiveness of the results obtained (Hashimzade & Myles, 2017). It is necessary to reconsider the approach to the provision of various IRS social transfers to the payer, which in addition to their obvious financial orientation have a negative side.
In conclusion, it is necessary to recognize the existence of categories of the deferred compensation that does not have or does not express a desire to show financial activity and adaptation to the conditions of a market economy. To a certain extent, the social function of the delayed tax leads to the development of social dependency and parasitism among recipients. They are interested in continuing to receive government support and not motivated to face IRS audit in various sectors of the economy. The delayed taxpayer relies on numerous legal benefits and the lack of government transfers.
Based on the preceding, it is necessary to conclude that in modern society, taxes should be an instrument of public authorities aimed at leveling social contradictions between high and low-income categories of the population. It also should focus on reducing the differentiation in the socio-economic development of regions. Today, it is necessary to rethink the significance of the taxing nature and functions of the tax regulations, interconnected with the formation of state policy. However, the IRS audit defense approach and 401K alternative taxation are aimed at transforming taxpayers from an “impersonal taxable object” into allies of public authorities. This creates an incentive to be interested in successfully implementing current tax reforms, improving the welfare of modern society, and resolving existing social, economic contradictions.
Altshuler, R., & Goodspeed, T. J. (2015). Follow the leader? Evidence on European and US tax competition. Public Finance Review, 43(4), 485-504.
Gorovitz, E. (2017). Public health and politics: Using the tax code to expand advocacy. The Journal of Law, Medicine & Ethics, 45(1), 24-27.
Hashimzade, N., & Myles, G. (2017). Risk-based audits in a behavioral model. Public Finance Review, 45(1), 140-165.