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. Internal Revenue Service - IRS

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

    An illegal practice where a person, organization or corporation ...
  6. Tax Avoidance

    The use of legal methods to modify an individual's financial ...
Related Articles
  1. Taxes

    10 Steps To Tax Preparation

    Follow these simple steps to get you ready for the income tax deadline of April 15.
  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

    What are the best ways to lower my taxable income?

    Paying taxes is an unavoidable obligation each year, but individuals and business owners can take advantage of various strategies for tax savings.
  8. Taxes

    How To Deduct All Of Your Charitable Donations?

    Donations made to charitable organizations can reduce your taxable income, thus your overall tax bill. But not all donations qualify to be deductable.
  9. Taxes

    What is Value-Added Tax (VAT) and who pays it?

    Learn about the definition of value-added tax, the necessary circumstances that require a business to pay it and when a business is exempt.
  10. Taxes

    What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual tax returns each year.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center