Investments that yield tax benefits are sometimes called tax shelters and can be legal under federal and state laws. But abusive tax shelters are schemes involving transactions with little or no substance that are not recognized by federal and state taxing authorities and that may create taxpayer liability for interest, penalties, and possible criminal prosecution.
In Florida, as in other states, certain investments that offer tax benefits, commonly known as tax shelters, are legal and can be used to reduce taxable income. These may include investments in real estate, retirement accounts, municipal bonds, and other vehicles that are sanctioned under federal and state tax laws. However, abusive tax shelters are illegal. These are typically complex financial arrangements designed solely to evade taxes, lacking genuine economic substance or business purpose. The Internal Revenue Service (IRS) and Florida's Department of Revenue do not recognize abusive tax shelters and actively pursue taxpayers who engage in such schemes. Participants in abusive tax shelters can face substantial penalties, interest on unpaid taxes, and the possibility of criminal charges. It is important for investors in Florida to ensure that any tax shelter they consider is legitimate and complies with both federal and state tax laws.
