what level of tax avoidance is permissible?

The following is an excerpt from my December 2, 2013 article in Tax Analysts State Tax Notes:

Here’s a multiple choice: the difference between tax avoidance and tax evasion is (a) whatever the IRS says, (b) a smart lawyer, (c) 10 years in prison, (d) all of the above. — Avery Tolar (Gene Hackman) in The Firm

According to the courts, tax avoidance is legal, but tax evasion is not. However, tax avoidance without business purpose or economic substance may be treated as a sham and disallowed. The history of state tax planning and two recent conflicting state decisions raise a question: What level of tax avoidance is acceptable?

Senate Finance Committee member Chuck Grassley, R-Iowa, once said that at the heart of every abusive tax shelter is a tax lawyer or accountant. That may be true, but what about legal tax planning and avoidance? Who, or what, is at the heart of tax avoidance? The answer to that may depend on the experience of the individual responding — whether he has worked for the government or has represented taxpayers against the government. Hence, we all decide whether tax avoidance should be allowed based on our own biases. For example, I have always worked as a taxpayer representative or advocate. Thus, I naturally lean toward the taxpayer’s point of view.

From the taxpayer’s side, I have experienced tax authorities abuse power, neglect the law, and use vague laws to raise revenue. States have imposed unconstitutional state taxes and pleaded bankruptcy when found guilty. On the other side, I have experienced taxpayers and advisers who analyze laws to the finite detail to wiggle around corners and yet stay within the boundaries of the law. As a result, both government and taxpayers can take advantage of the law, but who is right? What is acceptable? What came first — aggressive tax planning or overreaching and vague tax laws?