Question

which of the following scenarios illustrates a potential tax avoidance scheme? question 2select one: a. property transferred between arm's-length parties is valued at fair market value. b. a shareholder owns two corporations and undertakes legal steps in order to permit loss utilization between the two companies. c. dividends received from shares transferred from a wife to her husband are taxed in the hands of the wife. d. a man transfers property to his child at a value less than fair market value.

Answer 1

A potential tax avoidance scenario is when a shareholder owns two companies and legally manages to utilize losses between them to reduce taxes. Fair transactions, proper dividend taxation, and gift tax implications do not illustrate tax avoidance. Tax avoidance schemes often arise when people try to exploit tax laws to reduce liability.

Step-by-step explanation:

The scenario that illustrates a potential tax avoidance scheme is: b. a shareholder owns two corporations and undertakes legal steps in order to permit loss utilization between the two companies. While this action can be legal, it suggests a deliberate structuring of affairs to minimize tax liabilities.

Options a, c, and d do not necessarily indicate tax avoidance. Fair market value transactions and taxation of dividends in the hands of the original owner are generally in compliance with tax laws. Transferring property below fair market value (option d) could imply gift tax implications rather than avoidance.

Tax fairness implies that loopholes should be minimized, ensuring that all pay their equitable share. Governments seek the right balance between economic output and income equality, but some policies might prompt individuals or corporations to seek means to lessen tax burdens, sometimes in unintended ways.