a.
Determine if the given situation amounts to tax avoidance or tax evasion.
a.
Explanation of Solution
Tax Avoidance Vs Tax Evasion: Tax avoidance refers to legalized means of reducing the tax liabilities by the taxpayers through tax planning, on the other hand, illegal means to avoid tax is known as tax evasion which is considered as offence and punishable under law.
In this case, since Mr. L is engaged in concealing his real income and understating it deliberately to avoid tax liability, this would be considered as tax evasion.
b.
Determine if the given situation amounts to tax avoidance or tax evasion.
b.
Explanation of Solution
In this case, since Mr. P did not conceal any of his income rather encourages his son who is with lesser marginal tax rate than him, to invest $50,000, Mr. P is said to be engaged in tax avoidance.
c.
Determine if the given situation amounts to tax avoidance or tax evasion.
c.
Explanation of Solution
In this case, since Mr. Q did not reveal truth in reporting his current years’ profit in the previous year just to gain by the lower marginal tax, he is deliberately trying to cheat the authorities by wrong reporting of income and thus, would be considered as tax evasion.
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Chapter 4 Solutions
PRINCIPLES OF TAXATION F/BUS.+INVEST.
- In each of the following problems, identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify. Thans grandmother dies and leaves him jewelry worth 40,000. In addition, he is the beneficiary of a 100,000 life insurance policy that his grandmother had bought before she retired.arrow_forwardIn each of the following problems, identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify. Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about 35,000 a year. Several months later, Binh proposed marriage and Anika accepted. Just before the wedding, Anika told Binh that she had a mental hangup about marriage, and Binh agreed to live with her without being married. In return, Anika promised to leave Binh her entire estate. In the ensuing years, they had an intimate, marriage-like relationship, attending social, business, and family functions together. Anika died in 2015. No will was found immediately. A few months after Anikas death, her sister found a one-page paper signed by Anika. The paper left Anikas entire estate to her brothers and sisters and named her sister as executor of the estate. Binh sued Anikas estate and won a judgment of 2 million for services rendered to Anika during their relationship. The estate appealed the decision, which was affirmed as to liability but reversed and remanded for a new trial on the amount of the judgment. Binh and the estate subsequently worked out an agreement in which the estate paid Binh 1.2 million to settle his claim.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT