An abusive tax shelter is an investment scheme that attempts to reduce income tax without serving any other economic purpose. The value of income or assets is not changed, so the sole purpose of an abusive tax shelter is to avoid tax.
The IRS attempts to deter participations in abusive tax shelters through tax audits, summons enforcement, litigation and other methods. There is also an abusive tax shelter hotline, where anyone can anonymously provide information about abusive tax shelter transactions.
Analyzing an Abusive Tax Shelter