Tax Shelters Sound Strategy Or Dangerous Game?

Abstract

Tax shelters, once thought to be extinct due to the at-risk and passive activity loss rules, continue to appeal to corporations and wealthy individuals. While some legal activities such as owning your own business, home ownership, retirement plans, and like-kind or section 1031 exchanges may allow you to “shelter” income, some individuals and organizations continue to invest in schemes that the Internal Revenue Service finds unacceptable. Known as abusive tax shelters, the IRS issued a new set of regulations on February 28, 2003 in an attempt to identify these transactions, and ultimately, end their use by taxpayers. This article provides an overview of tax shelters, highlights some of the more famous tax shelter scandals, and provides guidance on the rules surrounding the use of tax shelters.