What is an Abusive Tax Shelter? - John R. Dundon II, Enrolled Agent
post-template-default,single,single-post,postid-8204,single-format-standard,bridge-core-3.0.1,qodef-qi--no-touch,qi-addons-for-elementor-1.5.6,qode-page-transition-enabled,ajax_fade,page_not_loaded,,qode_grid_1300,footer_responsive_adv,qode-content-sidebar-responsive,qode-theme-ver-29.3,qode-theme-bridge,qode_header_in_grid,wpb-js-composer js-comp-ver-6.10.0,vc_responsive,elementor-default,elementor-kit-269

What is an Abusive Tax Shelter?

What is an Abusive Tax Shelter?

An abusive tax shelter generally offers inflated tax savings which are disproportionately greater than your actual investment placed at risk. Usually you invest money to generate income or capital appreciation but an abusive tax shelter generates little or no income or capital appreciation, and/or the tax shelter exists primarily to reduce taxes unreasonably for tax avoidance or evasion. This can be deemed abusive by the IRS.

In comparison, a legitimate investment produces income or capital appreciation and involves a risk of loss proportionate to the investment. This type of tax shelter is often marketed in terms of how much you can write off in relation to how much you invest.

A series of tax laws have been designed to halt abusive tax shelters. The IRS has also identified 34 transaction as ‘tax avoidance’ transactions in IRS Notice 2009-59 as well as 4 ‘transactions of interest’ in IRS Notice 2009-55.

If you think it might be to good to be true it probably is.  You should refer to these lists of transactions for further clarification. Also check out IRS Publication 2193 (PDF), Too Good to Be True Trusts.