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 Alaska, as in other states, certain investments that offer tax benefits are legally recognized as tax shelters. These can include retirement accounts, real estate investments, and municipal bonds, among others, which are designed to encourage specific types of investment or economic activity. However, abusive tax shelters are a different matter. These are typically investment schemes that lack a genuine economic purpose other than the avoidance of taxes. The Internal Revenue Service (IRS) and Alaska's Department of Revenue do not recognize abusive tax shelters and engaging in such schemes can lead to significant consequences. Taxpayers involved in abusive tax shelters may face penalties, interest on unpaid taxes, and potentially criminal charges. It's important for investors in Alaska to ensure that any tax shelter they consider is legitimate and complies with both federal and state tax laws.