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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 Michigan, as in other states, there are legitimate investments that offer tax benefits, commonly referred to as tax shelters. These can include retirement accounts like 401(k)s and IRAs, real estate investments, municipal bonds, and certain types of insurance. These tax shelters are legal and encouraged under both federal and state tax laws because they often involve investments in areas that serve the public good, such as retirement savings or economic development. However, abusive tax shelters are a different matter. These are typically complex investment schemes that lack real economic substance and are designed primarily to evade taxes. The Internal Revenue Service (IRS) and Michigan's Department of Treasury do not recognize abusive tax shelters and actively seek to identify and penalize those involved in such schemes. Participants in abusive tax shelters can face substantial penalties, interest on unpaid taxes, and possibly criminal charges. It's important for taxpayers to ensure that any tax shelter they consider is legitimate and complies with both federal and state tax laws.

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Taxes

tax shelter

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Taxes

tax shelter

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