Abusive Tax Shelter

AAA

DEFINITION of 'Abusive Tax Shelter'

An investment scheme that claims to reduce income tax without changing the value of the user's income or assets. Abusive tax shelters serve no economic purpose other than lowering the federal or state tax owed when filing. Often, these schemes channel funds through trusts or partnerships to avoid taxation.

INVESTOPEDIA EXPLAINS 'Abusive Tax Shelter'

People who invest in abusive tax shelters can be penalized by the Internal Revenue Service (IRS). Typically, when the IRS determines someone has used such a scheme, the person will owe back taxes with accrued interest.

To help taxpayers recognize potential schemes, the IRS has compiled a list of transactions that are abusive tax shelters. If a tax shelter resembles a listed transaction, it is considered abusive and the users may face penalties.

RELATED TERMS
  1. Double Irish With A Dutch Sandwich

    A tax avoidance technique employed by certain large corporations, ...
  2. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  3. Tax Haven

    A country that offers foreign individuals and businesses little ...
  4. Income Tax

    A tax that governments impose on financial income generated by ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Tax Evasion

    An illegal practice where a person, organization or corporation ...
RELATED FAQS
  1. What is an IRS letter audit / audit by correspondence?

    Every year, the Internal Revenue Service (IRS) sends numerous notices to taxpayers. Letter audit, or audit by correspondence, ... Read Full Answer >>
  2. When might an abatement be granted by the IRS?

    The Internal Revenue Service (IRS) frequently imposes interest and penalties due to the late filing of a tax return, underpayment ... Read Full Answer >>
  3. What are the tax advantages of a Roth 401(k) over an IRA or traditional 401(k)?

    Roth 401(k) dollars are essentially subject to the same income tax rules as Roth IRA. Funds already held within a Roth 4 ... Read Full Answer >>
  4. Where can I find a good withholding tax table on the Internet?

    An Internet search for the most current withholding tax rates will likely result in numerous articles about how to pay the ... Read Full Answer >>
  5. What is the difference between a single and a married withholding tax?

    The difference between the amount of income tax withheld for single versus married persons in the United States depends on ... Read Full Answer >>
  6. In what situations would a loan to an S Corporation from one of its principals be ...

    When a principal of an S corporation pays money into the business, vastly different tax consequences exist depending on whether ... Read Full Answer >>
Related Articles
  1. Taxes

    Before You Visit Your Tax Preparer: Do This

    The earlier you start preparing your tax records and documents, the more likely you are to have a smooth tax return experience – and all the tax benefits you're due.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Taxes

    How To Report A Tax Cheat

    If you report a tax evader to the IRS, you could be eligible for a reward.
  4. Taxes

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  5. Taxes

    Safe Tax Planning For High-Net-Worth Filers

    Planning is essential for the affluent seeking tax breaks. Get to know the legal strategies for saving more.
  6. Retirement

    Avoid An Audit: 6 "Red Flags" You Should Know

    Don't make yourself a target - steer clear of these attention-grabbing tax-filing practices.
  7. Taxes

    IRS Refund Lost? Here's What to Do

    Don't panic. There are a number of reasons your refund might be delayed – and solutions for each.
  8. Investing

    Three Reasons Inflation Isn’t What You Think

    Though U.S. inflation has been firming recently— the core consumer price index rose in April for a 3rd month in a row—prices likely aren’t rising as much.
  9. Economics

    What's a Deductible?

    With insurance, a deductible is the amount of money the insured pays out-of-pocket before the insurance company pays for the loss.
  10. Options & Futures

    How Are Futures & Options Taxed?

    We present a basic introduction to the US tax processes of futures and options.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!