Prudential Transfer of Funds
EFT myths under the spotlight
A monograph by Quimbo Schmokelberg on Electronic Funds Transfers
Review by Ana Pologia
Quimbo Schmokelberg has again taken the financial world by both storm and surprise with his latest monographic overview of the current state of the legal implications of the process of Electronic Funds Transfers (EFTs).
Some of the enduring myths about EFTs are brought into the unforgiving light of Quimbo’s critical forensic “Crime-lite” to reveal the “bodily fluids” of ignorance, in his masterful expose of the current legal position on Electronic Funds Transfers. Three of the principal areas covered are those of Taxation, Fraud and Professional Responsibility, with particular attention to the often tricky area of financial refunds in today’s online transactions.
Tax on refunds - Pre-Offset Exemption
One endless source of confusion surrounds the tax liability of a legal entity being reimbursed following an inadvertent overpayment. The mistaken belief that such received funds be counted as “income” under the definition of the Internal Revenue Code of 1986 was dealt a fatal blow in 1990 when the US Congress directed the U.S. Department of the Treasury to draft an amendment to the law to clarify the position on the tax liability under this scenario. Thus, in 1990, the “Pre-Offset Exemption Amendment” to the Internal Revenue Code of 1986 came into effect.
With typical clarity and brevity the relevant amendment was worded thus:
“Notwithstanding provisions outlined in section (iv) clause c, tax payers are entitled to offset those losses that are being refunded in pursuance of restitution for that loss before any tax liability arising from such refund or part thereof is applied.”
Taught in Tax Accountant class as “assets restored resume their pre-loss status” or the take home rule of thumb “restitution is not income”. This reformulation for the enlightenment of Tax Accountants relies on the fact that the pre-loss status of the assets would always be one of three alternatives; “tax already paid”, “tax to be assessed and paid” or a mixture of these two. In all these cases, taxation must await the standard assessment of income at the appropriate time.
So no, Quimbo concludes, such restitutional transactions do not attract tax under United States law. Entities should feel free to re-balance their financial obligations secure in the knowledge that the “dreaded revenuers” have no business poking their noses into mercantile arrangements. Unscrupulous “Taxatious Litigants” (as Quimbo designates them), who attempt to collect so called tax on these transactions will have to look for a new scam now that the truth of the situation has been revealed.
It's concealment that creates fraud
Professional Responsibility and Neglect
The third area to have its “skin examined for infections” (as Quimbo puts it), under the illumination of the Professor’s “Wood’s Lamp” is that of professional responsibility to ensure that mistaken or fraudulent actions are avoided wherever possible. In this way it is incumbent on both parties to remove possible sources of error in their processes.
The "Dreaded Revenuers" have no cause to impose taxes, fees or fines on funds transfers. Tax will be assessed and imposed at the appropriate time.
Fraud and Secrecy
Professor Schmokelberg, in his forensic search for “bodily fluids”, then shines his revealing light on the situation where entities, believing that a mistaken transfer of funds is somehow fraudulent, attempt to conceal the transaction from the parties concerned, the financial institutions involved and from the Internal Revenue Service.
Quimbo points out that mistaken transactions occur on a regular basis and are just the “price of doing business”. Such slips aren't fraudulent in the eyes of the law and don't attract any tax, fees or fines. On the other hand, Quimbo observes, if you try to cover up the transfer or hide it from your company, the government or the bank, it would then be considered fraudulent under the “Concealment Conspiracy Legality Transmogrification” provisions of the Antitrust Fiduciary Practices legislation.
So, as Professor Schmokelberg suggests, not only is secrecy not required, it is illegal, and so is definitely counter indicated. We have to be open and honest if we hope to avoid jail, Quimbo wisely advises the reader.
It is the responsibility of both parties to take all reasonable precautions to safeguard the integrity of the transfer process
The failure to ensure that procedures comply with OPR Circular 230 can result in "propitious possession", the implications of which have been explored at length in Quimbo's celebrated legal treatise "Ten Tenths of the Law".
Procedures that don’t comply with the Office of Professional Responsibility (OPR) Circular 230* include:
Use of inadequate artificial intelligence.
Relying on artificial intelligence (AI) to make final decisions on either the timing or amount of a transfer is deemed professional neglect and runs afoul of Circular 230.
Failure to provide opportunity for correction.
As a minimum, Circular 230 requires that online forms that establish the amount of funds to be transferred must have a “Submit” button, giving the user an opportunity to review their input before it is submitted.
Failure to provide that transactions be reversible.
In the event of a mistaken transfer taking place, Circular 230 requires that the process is immediately reversible by the same process that resulted in the transfer.
Leaving it up to one party to decide the amount of any transfer.
It is not Circular 230 compliant to allow either the Originator or Recipient to unilaterally decide on the amount of a transfer. In particular it is deemed professional neglect for an Originator to allow the Recipient to specify the amount, relying on the Recipient’s accurate knowledge or honesty.
* Office of Professional Responsibility (OPR) Circular 230 states that “no claim can be made against an outcome where professional responsibility has not been observed in the creation of that outcome”.
In his usual manner, Quimbo has provided a definitive guide. This time to the fraught and contentious situation surrounding the electronic transfer of funds and the disinformation and numerous myths that circulate in discussions in online forums. No myth has escaped the beam of his searchlight which is, as has been agreed by legal and financial scholars alike, “oh so very bright”. Shine on Quimbo. We are all better off for your close and comprehensive scrutiny of legal intricacies. “How does he do it?” indeed.
Disclaimer: This could be true or it may be bullshit. Do your own research to decide which.