Although the term may have a negative connotation, a tax shelter is, strictly speaking, not always illegal or bad.
After all, many people in the White Plains area have retirement plans which carry tax benefits with them. Many other New Yorkers own real estate and may attempt to do advantageous exchanges of real estate rather than selling it outright. Taking advantage of these investment vehicles with the favorable tax consequences in mind is, in a way, placing one’s money in a tax shelter.
The problem is that many others, either innocently or not, may get caught up in what the IRS describes as abusive tax shelters. Many of these abusive tax shelters are listed on the IRS’s website. Despite what those who promote them might say, the IRS considers these shelters, and similar look-alike financial setups, to be unlawful schemes to avoid or reduce one’s tax liability.
Not surprisingly, the IRS has a strict enforcement program aimed at shutting down abusive tax shelters, and punishing those who promote or participate in them, through civil or even criminal tax litigation. The IRS says that it will use the means necessary, including audits, reporting hotlines, self-reporting requirements and other legal devices as part of its efforts.
Of course, taking advance precautions, including reading the IRS’s list of disapproved tax shelters, is important. However, well-intentioned New Yorkers can wind up getting pulled into a suspect tax shelter remarkably easily.
In some cases, it may even be the IRS which is unfairly pursuing what really is a lawful plan to work within the tax code.
In all cases, someone who is involved in an investigation of an abusive tax shelter should consider seeking out legal advice.