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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 Massachusetts, as in other states, there are legitimate tax shelters that offer tax benefits to investors, such as retirement accounts (IRAs, 401(k)s), municipal bonds, and certain real estate investments. These are legal and recognized by both federal and state tax authorities. However, abusive tax shelters are a different matter. They typically involve complex transactions designed primarily to reduce or eliminate tax liability without any real economic substance or purpose. The Internal Revenue Service (IRS) and the Massachusetts Department of Revenue scrutinize these transactions closely. Abusive tax shelters can lead to severe consequences, including the imposition of interest and penalties. In some cases, they can even result in criminal prosecution for tax evasion or fraud. Both federal and state laws are aligned in their efforts to combat abusive tax shelters, and taxpayers are advised to steer clear of any investment schemes that seem designed primarily to evade taxes.

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Taxes

tax shelter

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Taxes

tax shelter

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