What is an Abusive Tax Shelter?

An abusive tax shelter is a financial scheme that reduce income tax and minimize other tax liabilities. Usually, abusive tax shelters are regarded illegal and often attract fines if the Internal Revenue Service proves that they have occurred. Abusive Tax Shelter is one that defraud the system of the potential tax that it is meant to receive. This financial arrangement is used by individuals or companies that want to avoid or evade tax payment. Generally, tax shelters minimize tax and there are some legal ways to do this such as the use of study loan and charitable donations. An individual with a study loan qualifies for deduction on income taxes, so also one that does charitable donations and has proof for this.

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How Does an Abusive Tax Shelter Work?

When individuals, business owners or companies file their tax reports with the Internal Revenue Service, they sometimes make certain claims with the aim of reducing their income tax. This is often used to defraud the system by lowering federal or state tax. Any individual who directly or incorrectly partakes in any act that amounts to tax abuse or tax evasion will face the penalty or criminal charges. The IRS issues a penalty of 75% tax payment for each year that is fraudulently filed. IRS can also file criminal charges in cases of grievous offenses. A guilty company or individual can however seek the help of an attorney to minimize penalties. However, individuals with proof of student loan payment, charitable donations receipts and other related transactions have no issues whatsoever with the IRS.