Moneyzine
/Personal Finance/Abusive Tax Shelter (Tax Avoidance Transactions)

Abusive Tax Shelter (Tax Avoidance Transactions)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The finance term abusive tax shelter refers to a transaction that serves no other economic purpose other than lowering the amount of taxes owed. Abusive tax shelters typically take the form of an investment scheme that claims to be able to reduce the level of income taxes paid without changing the value of the taxpayer's assets or income.

Explanation

Also referred to as tax avoidance transactions, abusive tax shelters usually involve transactions, such as an investment, that serves no true economic purpose other than its claim to lower the amount of income taxes owed the federal or state government.

The Internal Revenue Service (IRS) maintains a list of transactions it considers abusive tax shelters. Taxpayers conducting transactions appearing on that list, or ones resembling a listed transaction, may be penalized by the IRS. Penalties typically consist of the taxes owed plus accrued interest. Abusive tax shelters may involve complex levels of both domestic as well as foreign entities to conduct pass-through transactions. Examples of such entities include Limited Liability Corporations (LLC), Partnerships, S-Corporations, as well as trusts.

The IRS frequently investigates promoters of what appear to be tax avoidance transactions. The IRS will oftentimes require promoters to disclose both the types of transactions conducted as well as a list of investors participating in each transaction.

Related Terms

Related Content

How to Make a Million Dollars in 10 Years
Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
March 26th, 2024
How to Apply Maslow’s Hierarchy to Your Money This Year
You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
March 27th, 2024
How to Tackle Multiple Savings Goals
When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
March 22nd, 2024
The Countdown to Early Retirement: 10 Expenses to Eliminate
Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
March 22nd, 2024
What’s Your One Page Financial Plan? Mapping out Your Future
“What’s your one page financial plan?” — This is the absolute best question that I’ve heard asked in a long time. Instead of talking about your hot stock pick or your fancy investment that shields you from paying taxes, I think it’s time for all of us to step back and ask ourselves the most intelligent question of all, “Why the heck do I care about money anyway??”
March 14th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.