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From: jpexg@mit-hermes.ARPA (John Purbrick)
Newsgroups: net.taxes,net.singles
Subject: Re: marriage penalty (long quote at end)
Message-ID: <2299@mit-hermes.ARPA>
Date: Mon, 25-Feb-85 13:23:01 EST
Article-I.D.: mit-herm.2299
Posted: Mon Feb 25 13:23:01 1985
Date-Received: Thu, 28-Feb-85 11:54:37 EST
References: <1137@pyuxa.UUCP>
Organization: The MIT AI Lab, Cambridge, MA
Lines: 66
Xref: watmath net.taxes:738 net.singles:6012

> >John Purbrick writes:
> >	The couple who got divorced each year ended up losing their case; there
> > is a law that any transaction clearly intended primarily to reduce taxes is
> > necessarily invalid.
 
A. Figura rightly objected to the above (see quote at end). Where I said 
"intended primarily" I should have said "intended solely". Of course, we do all
kinds of things _primarily_ to reduce our taxes, and this is govt policy, as
the tax system is used to "persuade" people to do "desirable" things, such as
supporting housewives. What is not allowed, though, is a sham 
transaction which can have no purpose but to exploit tax loopholes, and if 
there isn't explicitly a law about this there certainly is a body of legal 
precedent that effectively does the same thing. An annual divorce and 
remarriage is an excellent example of what isn't allowed. The IRS isn't
(usually) arbitrary; you just have to understand their style of logic.

			decvax!genrad!mit-eddie!mit-hermes!jpexg
			jpexg@mit-hermes.ARPA



> WHAT? Surely you jest about this "law"!  E.g., I currently rent a very nice
> apartment, in a vary nice complex, for a reasonable amount of $. I like my
> apartment, and I don't, in general, like to move. However, my current situation
> (a single, "upwardly-mobile",  young professional) results in my paying
> mucho-kilobucks in income tax each year.  Thus, my calcualtions have shown
> me that I can no longer afford to ignore the tax breaks that home ownership
> provides. So I've decided to buy a townhouse.
> 
> Now, in my case, I don't need a bigger or better home; I don't necessarily
> want to move; I don't necessarily want the hassles, maintenance, etc.
> involved with a house. I only want to save on my taxes. Thus, in my case,
> it is obvious what my "clear and primary intention" is for buying a townhouse.
> 
> Are you telling me that because of this, the IRS will nullify my purchase
> or (worse) disallow my deductions? I can see some transactions (like an
> annual divorce) being a little questionable and probably invalid (and justly
> so). But nullifying ANY transaction that's primarily intended to reduce taxes?
> Not even the IRS could be that arbitrary? :-)
> 
> And what about my IRA? I don't necessarily like the idea of putting away $2000
> each year where I can't access it, even in case of emergency (except at a great
> penalty). Even if it is a "retirment" account, I'd much rather have the money
> be a little more available in case I really needed it.  But, because of the
> tax break it provides, I still have an IRA account. Thus, my annual transaction
> to add to my IRA is clearly intended primarily to reduce my taxes. Does
> that make my IRA tax deduction invalid?
> 
> If there is such a "law", then a lot of people are in for a nasty surprise
> from the IRS, including:
> 	- people (like me) who buy a house and take deductions on it
> 	- people (like me) who open IRA or Keogh accounts
> 	- people (like me) who buy (tax-free) municipal bonds
> 	- investors who take a voluntary capital loss to reduce taxes
> 	- people who have almost any other kind of tax shelter
> 	- businesses which claim ACRS deductions or investment tax credits
> 	- single-income couples who got married solely to take the additional
> 	   $1000 personal exemption for the non-working spouse ;-)
> 	- etc.
> 
> If there is such a law, I think I'm in big trouble!  And, I think a good
> number of other USENETters are in the same boat! I wonder if there are
> any federal prisons with a link to the NET, so we can all keep in touch
> after we get locked up for tax evasion? :-)

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