As long as there was a tax, taxpayers were attempting to circumvent the tax system.
A good example would be the assignment of income, where a wealthy individual would shift earned income to a child who did not earn the income to pay through a reduced child’s rate. Hence, the family would benefit overall from overall lower taxes as the parent was in a higher tax bracket compared to the child. Courts have struck down taxpayers’ efforts in high tax brackets to assign income for personal services to low tax rate individuals.
So what ends up happening? The IRS eventually catches up to these “creative and aggressive ways around the tax system” and corrects the “loophole” by introducing a new law to close the hole and to set things right.
Some examples of the taxes introduced to close out ways around the tax code would be what we now call the “kiddie tax.” Another classic example that many have heard about would be the “generation-skipping transfer tax,” or the GSTT. Freyman CPA, your success is our success each day, all day!
