Which of the following scenarios illustrates a potential tax avoidance scheme?
A) Property transferred between arm's-length parties is valued at fair market value.
B) Dividends received from shares transferred from a wife to her husband are taxed in the hands of the wife.
C) A shareholder owns two corporations and undertakes legal steps in order to permit loss utilization between the two companies.
D) A man transfers property to his child at a value less than fair market value.

Question

Quizplus · Accepted Answer

Transferring property to a child at a value less than fair market value is a potential tax avoidance scheme as it allows the transferor to reduce their tax liability without a legitimate reason for the undervaluation. This is different from scenario A where fair market value is used and from scenario C where there may be legitimate reasons for the loss utilization. Scenario B is also not a tax avoidance scheme as it is a common practice for spouses to transfer shares and receive dividends without incurring additional tax liability.

Which of the Following Scenarios Illustrates a Potential Tax Avoidance