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MISC Estate & Abusive Tax Avoidance Transactions

Question: How can I recognize an abusive tax avoidance transaction?

Answer:

Taxpayers can minimize their tax liability through legitimate investment, but they cannot invest in abusive tax avoidance transactions to minimize or eliminate their tax liability.  An abusive tax avoidance transaction:

  • Offers inflated tax savings which are disproportionately greater than your actual investment placed at risk. Generally, an abusive tax avoidance transaction generates little or no income or capital appreciation.
  • Is a transaction in which a significant purpose is the avoidance or evasion of federal income taxes. In comparison, a legitimate investment produces income or capital appreciation and involves a risk of loss proportionate to the investment.  Additionally, a legitimate investment has a business purpose other than the reduction of taxes.
  • Is often marketed in terms of how much you can reduce your tax liability.  

Take care in investigating your investment to discover if it is an abusive tax avoidance transaction. There is current information on IRS.gov covering abusive tax avoidance transactions including:

  • The American Jobs Creation Act of 2004, which contains many provisions that will affect abusive tax avoidance transactions.
  • Notice 2009-59 which contains a list of 34 transactions which have been identified as listed transactions.  Listed transactions are abusive tax avoidance transactions.
  • Notice 2009-55 which contains a list of 4 transactions which have been identified as transactions of interest.  A transaction of interest is a transaction that the IRS and Treasury Department believe has a potential for tax avoidance or evasion, but for which the IRS and Treasury Department lack enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction.

Category: Other
Subcategory: MISC Estate & Abusive Tax Avoidance Transactions

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Avenue NW
Washington, DC 20224