Ch02: TaBS

Question 1

Why do implicit taxes arise?

Answer 1

the pretax R from tax-favored assets is lower than the returns from tax-disfavored assets; demand by high-tax-rate buyers for tax-favored assets bid up the price on the tax-favored asset, which lowers its R

Question 2

What gives rise to tax restrictions?

Answer 2

Transactions motivated by tax rules meant to stimulate socially good activities. Yet these tax rules instead motivate people to try and reduce their tax liabilities.

Question 3

What are some broad restrictions on tax-payer behavior?

Answer 3

Economic substance doctrine
Business-purpose doctrine
Substance-over-form doctrine
Assignment of income

These doctrines, to an extent, are codified in the U.S. tax code

Question 4

Why do disputes between tax-payers and authorities arise?

Answer 4

The tax law is ambiguous.