Tax Issue: Explain the difference between tax evasion, tax avoidance, and abusive tax avoidance.

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Expert Solution

Tax evasion: tax evasion means avoiding tax by illegal means. Generally it involves suppression of facts , falsifying records,fraud or collusion. It is an attempt to evade tax liability with the help of unfair means.Tax evasion is illegal and would result in punishment by way of penalty, fines and sometimes prosecution. Eg: recording bogus expenses

Tax avoidance: Tax avoidance means taking undue advantage of the loopholes,lacunae or drafting mistakes for reducing tax liability and thus avoiding payment of tax which is lawfully payable.it is done by twisting or interpreting the provision of law and avoiding payment of tax . though it has legal sanction, it means following the provisions of law in better but killing the spirit of law. Eg : sale and leaseback of assets so that depreciation is diverted but the asset remains with assessee.

Abusive tax avoidance: generally an abusive tax avoidance transaction generates little or no income or capital appreciation.It is a transaction in which a significant purpose is the avoidance or evasion of federal income taxes.

ekkarill92 answered 1 year ago

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