Ch.

4 maxims of income tax planning

Tax avoidance vs.
1. tax avoidance: legally reduce taxes
tax evasion?
2. tax evasion: illegally reduce taxes
punishable through severe monetary fines
and imprisonment.
4 variables that
1. The entity variable: Which entity undertook
determine the
the transaction?
tax
-taxable income applies uniformly across
consequences of organizational forms. So the type of entity does not
a transaction
determine the taxable income.
BUT have tax consequences depend on the entity
that undertook the transaction because of different
applicable tax rates.
-the organizational form determines whether
business income will be taxed at the individual or
corporate rate.
2. The time period variable: Which tax
year/years did transaction occur?
3. The jurisdiction variable: Which tax
jurisdiction does transaction occur?
4. The character variable: What is the tax
character of the income rom the transaction?
Explain why an
Income shift can improve NPV by shifting the
income shift or a income from an entity with high tax to entity with
deduction shift
law tax rate.
can improve NPV
ID the
circumstances in
which a tax
deferral strategy
may not improve
NPV.
Tax character of
ordinary income
vs. capital gain.
Explicit tax. Vs.
implicit tax
4 tax planning
maxims
Legal doctrines
that IRS uses to
challenge tax
planning
strategies.