Tax avoidance vs. tax evasion

[dogbreath 440]

I can’t wrap my head around this. 
 

Parent pays adult children as employees, but cpa does w2 with high withholding which once refunded is then compliantly handed to parent to pay in to a quasi life insurance trust for the child. One child has a full time job unrelated to parent and other child is a student  

Issue 1. Is the work legitimate?  Gray area. Paid at higher rate than what work entails. 

Issue 2. Payroll and income taxes are paid so govt gets its share. 

issue 3.  Is it bypassing gift tax if issue 1 is not considered legitimate?  Anything else?

Issue 4. What is blowback on children if irs investigates and issue 3 is confirmed?

[Seasick Sailor 3747]

You're going to federal pound me in the ass prison. 

[HRSchenker 2333]

"That's super shady but I'm into it" 

[Kennythetiger 9590]

Watch your cornhole, Bud. 

[conVINCEd 21477]

As long as he kicks someone’s ass on the first day he’ll be fine.

[Reagan1k 3042]

So basically paying the kid to get money out of the business and the kid then buys a life insurance policy with it instead of spending it?

Business deducts the wages.  Business pays employment taxes.

Kid pays income tax and employment tax.

Lots of arbitrage there among tax rates

That seems like very little juice for the squeeze unless we're talking large sums where a few points saved equals big bucks....or if the focus is on the issue #3 and the annual gift exclusion.

The withholding seems dumb.  If you want to pay a kid, the tax is the tax and the withholding/refund part seems irrelevant at first glance....unless that's dad's way of keeping the kid from spending it.....  

Downside risk is that the wage could be treated as a dividend, not reasonable compensation, and that could cause some heartburn.

I guess in thinking through this quickly, that must be the angle - gift over and above the annual gift exclusion and hope the IRS doesn't invalidate the payment as wages and treats them as a dividend.

[52-80 19375]

sounds like you're gonna be involved in the economy of trading ramen packets and bubble gum for physical protection

[deadshank 24654]

Not a bad first offer to the bastards.

Lots of style points.