Other Tax Issues of Interest
Tax Shelters
A tax shelter is an investment that requires
substantial investment with a degree of risk. Tax shelters are
required to be registered and the seller is required to maintain
a list of the investors. The investors are required to report
the tax shelter number on their tax return using Form
8271.
The amount of your deductions or losses from
most activities is limited to the amount you have at risk.
You are considered at risk for an activity
for the following amounts:
- The amount of cash you invested in the
activity
- The adjusted basis of other property you
contributed to the activity, and
- The amount you borrowed to invest in the
activity, to the extent that you are personally liable on the
loan or have pledged property not used in the activity as security.
Note: Losses and credits from tax shelters
are often considered passive. Passive losses and credits can only
be used to offset income from other passive activities. They cannot
be deducted from other income such as wages, salaries, professional
fees, or portfolio income. The limitations are computed on Form
8582, Passive Activity Loss Limitations.
Abusive Tax Shelters
Abusive Tax Shelters are marketing schemes
that involve artificial transactions with little or no economic
foundation. Generally, you invest money to make money. Abusive
Tax Shelters offer:
- Inflated tax savings based on large write-offs
and credits that are usually out of proportion to your investment.
- Little risk despite outward appearances.
For additional information, visit IRS'
Tax Topic 454 - Tax Shelters
For more information on passive income and
losses, refer to Publication
925, Passive Activity and At-Risk Rules.
For more information on tax shelters and investment
considerations, refer to Publication
550,Chapter 2.
Important References
Form
8271
Form
8582
Web Link
IRS'
Tax Topic 454 - Tax Shelters