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Tax Shelters: Abusers, Promoters, and Securing a Sound Defense


Posted in on January 31, 2019

When many people hear the term “tax shelter,” they automatically think that some type of shady dealing is afoot. But nothing could be further from the truth.

Tax shelters are quite legal. A tax shelter is merely a technique a savvy taxpayer might employ to reduce their taxable income, which, in turn, lowers their taxes.

Legitimate Tax Shelters

There are many types of legitimate tax shelters. Sound tax avoidance planning could include depositing money in accounts that are not heavily or immediately taxed, such as retirement account and perhaps making charitable donations to reduce taxable income.

Some examples of legitimate tax shelters are:

  • Pension plans
  • 401(k) or 403(b) plans
  • IRAs
  • Municipal bonds
  • Certain types of employer-sponsored insurance coverage
  • Real estate investments

All of these tax shelters are designed to generate income. It’s just that the income they generate may be deferred from taxation until the taxpayer finds himself or herself at a lower tax rate or delays tax payments for some other legitimate purpose.

Abusive Tax Shelters and Their Promoters

Of course not all tax shelters are on the up and up. Some tax shelters are considered abusive in that their only purpose is to keep money from being taxed.

It is not unusual for abuse tax shelters to be masked in the complexity of multi-layered transaction, making it difficult to determine whose money is flowing through the layers. Often, abusive tax shelters are set up specifically to receive and store money, and exist for no other purpose.

The people who create, market, and sell these illegal schemes are called tax shelter promoters. According to the IRS, a tax shelter promoter is any person who:

  • Assists in organizing an abusive tax shelter
  • Participates (directly or indirectly) in selling any interest in an abusive tax shelter
  • Expresses a qualifying false or fraudulent statement about the ability to:
    • Allow any deduction or credit
    • Exclude any income
    • Secure any other tax benefit, which the person knows is materially false or fraudulent
    • Overstates gross value

The IRS continues to devote significant resources to identifying and combatting tax avoidance schemes. Individual taxpayers and businesses found using illegal tax shelters are likely to face substantial penalties and interest.  In addition, promoters abusive tax shelters face steep civil penalties, reach as much as $1,000 for each promoter activity or, if the promoter establishes it is less, 100 percent of the income the promoter derives or will derive from the activity.

And potential exposure includes more than civil penalties alone. The IRS Criminal Investigation Division works hand in hand with the U.S. Department of Justice in prosecuting the promoters and other individuals behind these illegal tax evasion schemes.

How The Thorn Group’s Maryland Criminal Tax Attorney Can Help

If you believe you have become entangled in an abusive tax shelter or suspect or have been notified that you are under investigation for participating in or promoting an abusive tax shelter, you need an experienced Maryland criminal tax attorney like Kevin Thorn by your side.

Call Thorn Legal Group at 240-235-5096 or contact us online to schedule a confidential consultation.

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