Tax Shelters Still Under IRS Scrutiny

Upwards of fifteen or twenty years ago, larger accounting and tax firms sold portions of limited partnerships to their wealthier clients for the express purpose of claiming exaggerated losses to reduce tax burdens. These “tax shelters” came under scrutiny by the Service and were summarily outlawed.

The concept was simple. If you invest a dollar, over time you will be able to deduct as many as five or six. This made the investment extremely lucrative given that most of the investors were in the 37% income tax bracket not including any state income tax loads.

This type of scheme has again reared its ugly head, now using the available tax deduction laws for land conservation.

These deals, commonly known as Syndicated Conservation Easements, purchase property that could potentially be used for mining. The property’s hypothetical value as a mining concern drives up the tax deductions associated with the promise to not mine the property.

These tax avoidance or tax shelter schemes are incredibly dangerous and should be avoided because they’re all being audited. The Service will wait a few years before beginning the audit process so that a more significant amount of revenue can then be collected from the investors.

The IRS will then audit the syndicate, erase all of the tax savings as being illegal, and then charge tax, interest, and penalty on the ill gotten tax deductions. The investor ends up receiving no benefit at all given that they’ve paid for the investment, lost their tax deductions, will have to pay someone to represent them in an audit, and will also pay interest and penalty.

Be smart and stay away from these. The fact that charlatans are now using the conservation laws to hurt people is simply disturbing.

Let me leave you with this.

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Accounting Solutions Ltd.

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