Advanced Corporate Planning: Tax Liability and Minimization

This report delves into the critical differences between tax avoidance and tax evasion, crucial concepts for taxpayers and tax authorities. It begins by differentiating tax evasion, tax avoidance, and tax minimization, highlighting that while all aim to reduce tax burdens, their legality and consequences vary significantly. Tax avoidance, the legal exploitation of tax laws, is contrasted with tax evasion, which involves illegal methods like income suppression. The report presents examples of both, illustrating how tax evasion can lead to criminal charges, while tax avoidance, though legal, requires adherence to tax laws and doctrines like the Business Purpose Test. The analysis explores whether tax liability minimization falls under avoidance or evasion, concluding that tax planning, the legal structuring of transactions, is preferable to avoidance. The report emphasizes the importance of early tax planning and the use of available provisions for optimal outcomes.

Advanced corporate planning

Table of Contents
Introduction......................................................................................................................................3
Comparison between tax avoidance and tax evasion......................................................................3
Examples of tax evasion..................................................................................................................5
Examples of tax avoidance..............................................................................................................5
Analysis of if or if not the tax liability minimization falls under tax avoidance or tax evasion......5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

INTRODUCTION
Tax evasion and tax avoidance aspects are under great consideration for taxpayers as well as tax
authorities. Majority of the business generally go through the dilemma of when to adopt the legal
approach to tax planning (Braithwaite, 2017). By considering their aspects, initially, it is
required to differentiate the tax evasion, tax avoidance and tax minimization concepts. Further,
these particular concepts include a broad variety of measures that are aimed to reduce tax
burdens, yet the legal outcomes of each are not similar to each other.
COMPARISON BETWEEN TAX AVOIDANCE AND TAX EVASION
Tax avoidance is considered as a practice wherein assessee attempts to defeat the fundamental
law intention legally, by taking benefit of the shortcomings held in the legislature. In contrast to
this, tax evasion is an exercise of making a reduction in tax liability by illegal mechanisms that
are inflating expenditures or suppressing income or by reflecting reduced income (Dyreng,
Hanlon & Maydew, 2018).
Considering the same through a different picture, tax avoidance is said to be completely legal, as
only those measures are used with are lawful (Braithwaite, 2017). On the other hand, tax
evasion can be named as a breach or a crime; it is because it resorts to different sorts of
deliberate manipulations.
In the US, tax evasion is the illegal taxes evasion by a business person, trusts and companies.
Generally, tax evasion is engaged with the deliberate misinterpretation of true state of affairs by
the taxpayers to the taxation authorities to make reduction in their tax liability and cover
dishonest reporting of tax e.g. declaring lower income or profits than the actual earned amount or
overstatement of deductions (Armstrong, Blouin, Jagolinzer & Larcker, 2015).
Tax evasion is stated as an activity linked with the informal economy, one of the means of the
tax evasion extent is the amount by which income is unreported, which is the difference of the
income amount that is required to be reported to the taxation authorities and the reporting of the
actual amount. In contrary to this, tax avoidance is the legal employment of tax laws to
minimize tax burden (Payne & Raiborn, 2018).

Tax evasion as well as tax avoidance can be considered as types of tax non-compliance, as both
of them depict a variety of activities that aim to undermine the tax system of a state, though such
categorization of tax avoidance is not viewed as indisputable, as reflected that tax avoidance as
legal, in the self-creating systems (Khlif & Achek, 2015).
There is a common consensus between financial reform group and lawmakers that the tax code
of the US is calling for an overhaul, in particular for the foreign earning governed by law (Bryk,
2017). Corporations, according to the existing law, can consider avoidance of U.S taxes based on
the profits earned on foreign basis till the time the money is brought by them. Further, this has
spurred companies to hide approximately $2 trillion in profits overseas. Similarly, federal tax is
in pursuit of outline a clear and precise difference between tax avoidance, which can do an
exposure of the Tax Practitioner and the involved clients to the expected civil penalties as well
tax evasion, by which criminal penalties might e applicable to the concerned parties. Under
Gregory v. Helvering, 293 U.S. 465 (1935), the Supreme Court outlined that allowable tax
avoidance as the practice to avoid, minimize or lessen taxes by completely legit means. In
severe contrast, evasion is engaged with tax avoidance that is usually attained through an aspect
of dishonesty or suppression and sometimes by deliberately illegitimate means (Andrés, 2018).
Thus, the taxpayers are permitted legally to select the most tax effective means to frame a
specified transaction. It has been stated by Helvering in court, that the legal taxpayer’s right to
reduce the amount of what otherwise would be their taxes, or in sum avoid them, in a means
which is permitted by law, cannot be put under doubt (Ascher, 2016). At the same time, it is
well known that avoidance of tax is entitled to taxpayer, the past controversy takes place from
the aspect that to frame the tax avoidance transaction to endure government inspection and
thereby push away from being recharacterized, the transaction is required to adhere to the total
tax laws as currently imposed including the common-law and statutory requires e.g. Business
Purpose Test, Step Transaction, Economic Substance, Substance Over Form Doctrines and Sham
Transaction.
EXAMPLES OF TAX EVASION
Tax evasion is related to the hiding of income and illegally minimizes the tax liability. In the
case of Walter Anderson, who is the entrepreneur of the telephone was convicted because of the

largest tax evasion case (Russell & Hofland, 2019). The government of the United States
initiated significant tax investigation into the business and personal activities of Anderson. It was
revealed that Anderson hides the facts of the business conducted by setting up companies in the
British and Panama, and it was his personal income. On the basis of this, he finds guilty of
evading the income tax (Lederman, 2019). This case law suggests that Anderson minimize the
tax liability by evading the income, and it is regarded as an illegal activity.
Further, in the case of Cheek V. United States, Cheek Stopped filing the income tax return. He
started claiming up to sixty allowances on a particular form submitted to his employer. From the
year 1982 to 1987, there were four cases addressing the federal income tax charged on him. He
claimed that he was not taxpayer according to the definition given in the act, wages are not
considered as income, the individual is not authorized for income tax as per the Sixteenth
Amendment, and the amendment was not applicable on him (Yantis and et al. 2018). In this case,
the court held that actual belief that tax law is not applicable due to the complexity of the law is
not considered as a reasonable reason for not filing the income tax return. Therefore, cheek was
accused of for failure to file an income tax return and tax evasion.
EXAMPLES OF TAX AVOIDANCE
Tax avoidance is the method by which the tax liability of an individual can be minimized. In the
legal case of Niuklee, LLC v. Commissioner, Niuklee purchased aircraft from out of the state. As
per the norms of the sales tax act, goods are eligible for an exemption for sale for resale, subject
to a condition that seller holding the certificate of resale and instant leased the Aircraft to the
third-party user. Department argued that the lease is not considered as a bona fide sale. Therefore
the exemption is not available to taxpayer, and it is regarded as tax avoidance. In this issue, the
court held that leases were reasonable and not encouraged by tax avoidance (Prichard & Moore,
2018). Further on the basis of economic substance doctrine, the requirement of bona fide sell
satisfies. Therefore it is not considered as tax avoidance by the taxpayer. This example suggested
that tax avoidance is not illegal; it is just a method by which the taxpayer can minimize its tax
liability.
In addition, any person is allowed to make an arrangement in such a manner by which it can
minimize the tax liability in the case of MS Brighton LLC v. The city of Brighton is related to

property valuation rules. City of Brighton (Respondent), challenges the valuation of “true Cash”
of the subject property. Property tax assessment has been charged by the respondent against the
subject property in addition to the adjoining parcel. MS Brighton (petitioner) challenged the
assessment of properties for the tax year 2008 by 2012. By analyzing the relevant facts and
analysis by the lower authorities, the court held that it is not required by the person to develop
the property for maximizing the value of the tax. Instead, he/she can arrange the activities in such
a way by which the tax liability can be minimized as minimum as possible. Further, the person
is not bound to select the method which will enhance the pay of treasury, and it is not the
obligation to increase the tax liability (Dickinson, 2018).
ANALYSIS OF IF OR IF NOT THE TAX LIABILITY MINIMIZATION
FALLS UNDER TAX AVOIDANCE OR TAX EVASION
In a general way, tax avoidance has multiple alternatives labels generally known as ‘tax abusive
shelters’, ‘abusive tax avoidance’, ‘impermissible tax avoidance’ or ‘aggressive tax planning’.
From any perspective, tax avoidance is in contrast with tax minimization which is generally
stated to ‘tax mitigation’, ‘acceptable tax avoidance’ or ‘tax planning’(Prebble & Prebble, 2017).
Tax avoidance is asserted as the legal exploitation of the rules of tax by the payers of tax by
adopting a complex structure to lessen tax while conducting a full and accurate disclosure of the
material information to the taxation authorities (Marjit, Seidel & Thum, 2017). Besides, tax
avoidance is referred to as the indirect law contravention if the intention of the structure is to
alleviate or decrease the tax burden. Even though not typically illegal, still tax avoidance to lead
to massive penalties.
Tax minimization is a standardized tax planning, it is engaged with the most tax effective means
to frame business transactions, and the impact of the same stays under the intent and the letter of
the law (Artemenko and et al. 2017). In addition, the taxpayer is allowed to consider and uphold
possible tax savings while making key business decisions. However, this is not to be considered
for a dominant purpose, neither for artificial structures. There is an absence of enforced sanctions
for this practice.

For this aspect case of REED v. C.I.R., 723 F.2d 138, United States Court of Appeals, can be
considered. In this case, tax planning was entitled as The Commissioner next argues that in the
year 1973 Reed obtained a benefit of taxable economic in the virtue of Cvengros' deposit of the
sales proceeds in the escrow account. This case is highly familiar and friendly to taxpayers and
thereby is a significant tool for planning. Further, second case for avoidance for minimizing tax
liability states that In the circumstances of ESTATE OF KILLIAN v. COMMISSIONER, 53
T.C.M. 1438, United States Tax Court., it has been concluded by the court that it would be
unfair to consider petitioner legally responsible for the insufficiency in tax subjected to
considerable understatement caused from the loss claimed. Accordingly, court held that
petitioner has formed that individually satisfies the criteria of section 6013(e) and is reduced of
liability for the deficit in tax from the unacceptable deduction (Marshall, 2016) therefore, if the
tax liability is minimized through structured legal ways that it is considered under criteria of tax
planning else, it will be treated as tax evasion.
CONCLUSION
The present study shows that tax evasion and tax avoidance are intended to decrease the ultimate
tax liability, but the main difference is that the previous one is justified in terms of law it is
because it does not offend to breach any law. On the other hand, it is biased as the taxpayers
conduct with honesty and integrity makes arrangements for postponing of unnecessary regimes
and laws. In context with later, evasion is totally unjustified, as it a counterfeit activity, due to
the fact that it engages the actions which are law forbidden and therefore it is liable to be
punished by tax authorities and government. In a long term basis, tax planning is a more
effective alternative than tax avoidance. It is clearly a better option to determine various
accessible provisions and make optimum utilization of them to generate the most optimal
outcome. In doing so, the taxpayer is required to start their tax planning early in the year. The
taxpayer might not be willing to wait to approach for deadlines, where comes they stuck being
rushed and make an incorrect decision. One of the best things about tax planning is that are
several options in the legal framework for profit maximization.

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