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 Indiana, as in other states, there are legitimate investments that offer tax benefits, commonly referred to as tax shelters. These can include retirement accounts like IRAs and 401(k)s, municipal bonds, and certain real estate investments that provide deductions and credits to reduce tax liability legally. However, abusive tax shelters are a different matter. These are typically complex financial arrangements designed primarily to avoid taxes rather than to yield an economic return on investment. The Internal Revenue Service (IRS) and Indiana Department of Revenue do not recognize abusive tax shelters as valid, 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 charges. Both federal and state tax laws are designed to penalize and deter the use of abusive tax shelters, and they provide specific definitions and penalties for such activities. It is important for investors in Indiana to consult with an attorney or a tax advisor to ensure that their investment strategies are compliant with tax laws and regulations.