Chapter 4 - Chapter 4 Avoidance vs. Evasion -Avoidance is...

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Chapter 4 Avoidance vs. Evasion -Avoidance is legal: being smart about it -Understanding the law: You can ask for a delay to pay taxes. -Tax planning -Tax evasion is a federal crime: crossing the line -Cheating -Omission: Got a W-2 but didn’t put it in on my tax return -Fraud Income Tax Planning-Entity -Individual taxpayers -Progressive tax rate structure that ranges from 10%-35%: to shift interest to a child I must give that child money as a gift and put it into a savings under the child’s social security number. -Conduit Entities -Flow tax-thru income to individuals: not an actual person. It would include trust accounts. A conduit entity owns the assets. -Corporate Taxpayers -Progressive tax rate structure that ranges from 15%-35% -Marginal rates of 38% and 39% eliminate benefits of lower brackets. -Income Shifting -Arranging transactions for the purpose of transferring income from a high tax rate entity to a low tax rate entity. A company transfers it’s 100 to another firm with a lower tax rate. The firm now has zero cash flow and the other firm would have a higher cash flow after-tax. -Deduction Shifting -Arranging transactions for the purpose of transferring deductions from a low tax rate entity to a high tax rate entity. A company transfers a fully deductible expense of 80 to a firm with a higher tax rate. The cash outflow of the firm goes to zero and the other firm now pays 49 as opposed to the lower tax rate firm paying 68. (80*.39 vs 80*.15) -Assignment of Income Doctrine -Prohibits shifting of income from property UNLESS the property is transferred
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This note was uploaded on 04/02/2008 for the course ACCT 4440 taught by Professor Stec-helsta during the Fall '07 term at Colorado.

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Chapter 4 - Chapter 4 Avoidance vs. Evasion -Avoidance is...

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