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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 Hawaii, as in other states, there are legitimate investments that offer tax benefits, commonly referred to as tax shelters. These can include retirement accounts, real estate investments, and certain business ventures that are designed to reduce, defer, or eliminate tax liability in a manner that complies with the law. 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 Hawaii's Department of Taxation do not recognize abusive tax shelters and engaging in such schemes can lead to severe consequences including interest charges, penalties, and the possibility of criminal prosecution. Taxpayers in Hawaii are advised to be cautious of investments that seem too good to be true and to consult with an attorney or a tax professional when considering tax-related investment strategies.

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Taxes

tax shelter

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Taxes

tax shelter

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