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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 Connecticut, as in other states, certain investments that offer tax benefits, commonly known as tax shelters, are legal and can be used to reduce one's tax liability. These may include investments in retirement accounts, real estate, 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 transactions that lack a genuine economic purpose other than to evade taxes. The Internal Revenue Service (IRS) and Connecticut's Department of Revenue Services do not recognize abusive tax shelters and engaging in such schemes can lead to severe consequences. Taxpayers involved in abusive tax shelters may face substantial penalties, interest on unpaid taxes, and the possibility of criminal prosecution. It is important for taxpayers to ensure that any tax shelter they consider is legitimate and complies with both federal and state tax laws. Consulting with a tax attorney can help individuals and businesses navigate these regulations and avoid the pitfalls of abusive tax shelters.

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Taxes

tax shelter

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Taxes

tax shelter

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