Question

Which of the following transactions would NOT be acceptable to the IRS as a means of switching the taxable income to another taxpayer?
a. Selling a taxpayer's assets to her business at fair market value
b. Transferring interest income from a taxpayer's investment to his young daughter
c. Giving a gift of the taxpayer's stock to her son

Answer 1

Answer:

B) Transferring interest income from a taxpayer's investment to his young daughter

Explanation:

If you want to pay less taxes there are two basic ways that you can do it:

1. moving income (and deductions) to a more favorable tax jurisdiction, e.g. many multinational corporations did this by setting foreign headquarters that managed sales outside the US
2. moving income form a tax payer that falls under into a high tax bracket to another taxpayer that falls under a lower tax bracket, e.g. giving stock to your children as a gift