Tax avoidance v tax evasion tax avoidance implies tax

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Tax Avoidance v. Tax Evasion Tax avoidance implies tax planning. An individual arranges affairs to minimize tax liability. 6. Tax evasion occurs when there is a completed transaction and the taxpayer refuses to pay the tax due. Tax Avoidance: Investment Strategies With an eye towards tax avoidance, the most logical investment is still tax-exempt municipal bonds. 7. Another opportunity available to some taxpayers is real estate. The real estate rules have been tightened, but many investment opportunities still exist. Tax Evasion Penalties The U.S. has a self-assessed income tax. To be effective, everyone who has a tax obligation must pay a fair 8. share. An individual enjoying the bene fi ts of the country must help defray the cost. Therefore, individuals convicted of evading taxes are prosecuted as criminals.
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5 Instructor’s Manual © 2009 CCH. All Rights Reserved. Chapter 1 Fraudulent Acts The most common badges of fraud are: 9. Understatement of income (1) Claiming fi ctitious or improper deductions (2) Accounting irregularities (3) Allocation of income to related taxpayers in lower income tax brackets (4) Acts and conduct of the taxpayer, e.g., false statements (5) Tax Policy The tax gap is the dollar amount of taxes due the government but never collected. Much talk has taken place 10. in recent years about the injustice of raising taxes while the tax gap is widening. The year 1996 was the fi rst year in which the tax gap actually shrank in size. Tax Planning By means of income-shifting, an individual’s tax liability can be reduced legally. This is a very important 11. concept in family, fi nancial, and estate and gift tax planning. Tax History The federal government could not assess a direct tax. 12. Taxing System and Social In fl uences Changes in the taxing system to re fl ect changes in society and lifestyles include the following examples: 13. The Taxpayer Relief Act of 1997 incorporated provisions to help families with the cost of higher (1) education. During the 1960s and 1970s, there was much interest in helping the poor and the elderly. This was (2) re fl ected in the taxes and credits allowed for both groups. Alcohol, cigarettes, and gasoline are taxed heavily at the federal level. The imposition of these excise taxes is a social control imposed on consumers by the government in an effort to curb excesses. To further this social policy, a 10 percent luxury tax was imposed in 1990. The luxury tax expired on December 31, 2002. In an effort to help low-wage earners, a much larger standard deduction was instituted for 1988 and (3) thereafter. Tax Collection—Constitutional Authority The Sixteenth Amendment, which took effect in 1913, gave Congress the clear authority to tax income from 14. whatever source derived. Income Tax Law—Date of Enactment The Revenue Act of 1913, which imposed an income tax, was made retroactive to March 1, 1913. The date 15.
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