Abusive Tax Shelter
What it is:
An abusive tax shelter is an tax liability.
How it works (Example):
For example, let’s say John Doe and his wife have a child who begins college this income level, if he deducts more than that or includes non-deductible expense (such as the student's car), John is abusing the tax shelter.. Though John may be entitled to deduct up to $4,000 of education expenses due to his
Why it Matters:
Abusive tax shelters cheat the government out of millions of dollars a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution.” It is important , however, that generally requires willful and intentional activity for the purpose of lowering a .. They are illegal and punishable by fines, penalties, interest and prison time. Section 7201 of the Internal Code states that “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a
Taxes reduce the amount ofan investor has left over to spend or reinvest (in the latter case, taxes can reduce an investor’s returns considerably over the long run). Accordingly, most people try to minimize their tax bills by making their portfolios (among other things) as tax-efficient as possible. This strategy in itself is neither illegal nor unethical.
However, there can be a fine line between tax efficiency and . Notably, however, in order to prove tax evasion, generally there must be proof of intent and action to evade an unpaid tax liability. In the example above, the prosecution would have to prove that John Doe willfully attempted to hide or manipulate information to avoid paying taxes. If intent does not exist, the may (or may not) resort to imposing fines, penalties and interest.