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 Oklahoma, as in other states, there are legitimate investments that offer tax benefits, commonly known as tax shelters. These can include retirement accounts like IRAs and 401(k)s, municipal bonds, and certain real estate investments that comply with 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 reduce taxes owed. The IRS and Oklahoma Tax Commission do not recognize abusive tax shelters and engaging in such schemes can lead to severe consequences including interest charges, penalties, and potentially criminal charges. Taxpayers are advised to be cautious of investments that promise tax benefits that seem too good to be true and to consult with an attorney or a certified tax advisor when considering such investments.