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"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."

Gregory v. Helvering, decided by the US Supreme Court in 1935.

Edit: So if it's a legal arrangement that reduces taxes, then yes, it's legal.

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At least in some jurisdictions, arrangements solely for the purpose of avoiding taxes (barring explicit carve-outs) are not permitted.

https://www.canada.ca/en/revenue-agency/programs/about-canad...

TLDR: if the only reason for a transaction is tax avoidance, it may not be "illegal", but it may be disallowed (and presumably incorporated in subsequent legislation).

Similar is "wash sale" legislation: for example, selling a security for a tax loss and

- buying it back within 30 days

- buying a call option on that security.

I will guess that the former might get you just a reassessment (the first time). The latter... well, you're smart enough to know about options and tax-loss sale, now you need to demonstrate that you didn't do it for tax avoidance.

Not sure what US law (federal and gazillion states) has on this.

There's probably a law that makes this arrangement illegal.

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