Tax shelters

 

Tax shelters are defined as investments that allow a reduction in an individual` s taxable income. The collaboration of the U.S. Internal Revenue Service and the United States Department of Justice has resulted in the crack down of 'abusive' tax shelters.
In 2003 the Senate` s Permanent Subcommittee on Investigations lead hearings about tax shelters. The title was: U.S. Tax Shelter Industry: The Role of Accountants, Lawyers, and Financial Professionals. The great amount of these tax shelters was designed by accountants who were employees of the large American accounting companies.
There are several examples of US tax shelters:
Foreign Leveraged Investment Program and Offshore Portfolio Investment Strategy are also known as 'basis shifts' or 'defective redemptions'.
The issues such as: home ownership, pension plans and the Roth IRA` s could be considered as tax shelters, as funds in them are not taxed provided that they are kept within the IRA for a certain period of time. Originally the term expressed investments that are known as limited partnerships. Initially, it was possible in a certain partnerships such as oil exploration ventures or real estate investment ventures to use the losses of the partnership to counterbalance the income by decreasing the amount of income tax that was necessarily paid. As a result, it was a benefit to establish a partnership which only lost money. In 1986 the Congress ratified the limitation on tax deduction for business losses. The innovation of the tax law focused on those taxpayers who were exposed to loss by closing the passive activity loss. Accompanying by the hobby loss rules, it reduced the tax avoidance by entrepreneurs who would otherwise be engaged in non-profitable business in order to create deductible losses.