The IRS is cracking down on tax shelter abuses. Simply defined, tax shelters are avenues available to taxpayers to reduce their amount of taxable income. Therefore, tax shelters reduce the amount of taxes owed. It’s your right as a taxpayer to take advantage of legitimate tax planning.
But if the shelters are not legitimate, watch out! The IRS considers abuse of tax shelter a type of tax evasion. Here’s a list of just a few of the actions that the IRS labels as abuse of tax shelters:
- Offsetting Foreign Currency Option Contracts. Exploits Internal Revenue Code when recognizing gains or losses on foreign currency contracts.
- International Business Company Transactions. Involves corporations formed under corporate laws of tax havens.
- Lease In/Lease Out Transactions. An asset leased from a tax-exempt entity. The taxpayer makes a large down payment in a headlease, then subleases the asset back to the entity with an option to purchase the remainder of the headlease. Meanwhile, the taxpayer obtains loans based on the headlease, with the sublease used as collateral.
- Foreign Trusts. Generally involves an arrangement whose purpose is to confer on trustees the responsibility for safeguarding property for beneficiaries who can’t fulfill such duties; foreign trusts usually fall outside the jurisdiction of the United States.
- Stock Compensation Transactions. Conferring stock upon recipients with the overt intent to evade disclosure of profits.
If not handled with thorough knowledge of the Internal Revenue Code, the IRS audit or appeal process involving tax shelters can result in high taxes, penalties, and interest – sometimes even in criminal charges. If you’ve been targeted for an audit or you’ve reached the appeals stage, consider consulting a tax attorney to ensure your rights and compliance with the law.
As a tax boutique, Law Offices of Christy Lee, P.C., will advise you concerning the best methods to stay compliant, we will warn you about potential missteps, we can assist you with IRS filings, and we will represent you in your audit and appeal processes. We focus on resolving complex tax issues when it comes to your wealth preservation planning. Give us a call to discuss optimal, safe ways to save tax dollars while minimizing your chances for a damaging audit or appeal.