This chapter addresses the role of tax advice in encouraging aggressive and abusive tax planning by high-end taxpayers. It begins with a discussion of the different roles of tax advice, one of which is its use as a form of tax penalty insurance. The chapter then shows how the rich benefit disproportionately from the ability to avoid penalties through tax advice. After describing these effects, we offer a proposal for incorporating means adjustments into the tax penalty defense rules, focusing specifically on tax advice, and we respond to potential objections and concerns.

What are the weaknesses of the current tax compliance rules, and how can these rules more effectively address the challenge of high-end tax noncompliance? This chapter first describes the limitations of the traditional responses to tax noncompliance in the law and in prominent reform proposals. It then introduces a new approach: a system of means-adjusted tax compliance rules. As we argue, this approach can both complement the traditional responses to noncompliance and counter their limitations to build a more robust and effective tax compliance system. The final section of this chapter describes how introducing means adjustments to the tax compliance rules would not be a radically new direction for tax reform, but rather an extension and rationalization of principles that are already embedded in the current tax law.

Tax avoidance is one of the most controversial and widely debated topics in taxation law. This chapter examines the concept of tax avoidance and distinguishes it from the concepts of tax evasion and tax planning with which it is sometimes confused. It also discusses various judicial and legislative responses to tax avoidance. In particular, it focuses on the specific anti-avoidance provisions in div 6A of pt III ITAA36 and pt 2-42 ITAA97, which have been enacted to address certain income alienation schemes designed to divert income from taxpayers who are subject to high rates of tax to their associates (eg family members and related entities) who are subject to lower rates of tax. It also discusses service entity arrangements, which have been used by some professional firms to split income.