Abusive Tax Avoidance Transactions

Michael Lodge

by Michael Lodge

Everyone wants to have a way to avoid taxes but it has to be through a legal method to do so.  We have individuals that call the office or clients that want advice on the tax methods to reduce their tax liability on Estates and other tax issues.  So the question is:

Question: How can I recognize an abusive tax avoidance transaction?


Taxpayers can minimize their tax liability through legitimate investment, but they cannot invest in abusive tax avoidance transactions to minimize or eliminate their tax liability. An abusive tax avoidance transaction:

  • Offers inflated tax savings that are disproportionately greater than your actual investment placed at risk. Generally, an abusive tax avoidance transaction generates little or no income or capital appreciation.
  • Is a transaction in which a significant purpose is the avoidance or evasion of federal income taxes. In comparison, a legitimate investment produces income or capital appreciation and involves a risk of loss proportionate to the investment. Additionally, a legitimate investment has a business purpose other than the reduction of taxes.
  • Is often marketed in terms of how much you can reduce your tax liability.

Investigate your investment to discover if it is an abusive tax avoidance transaction.

Current information on IRS.gov covering abusive tax avoidance transactions includes:

  • The American Jobs Creation Act of 2004, which contains many provisions that will affect abusive tax avoidance transactions.
  • Notice 2009-59, which contains a list of 34 transactions that the IRS has identified as listed transactions. Listed transactions are abusive tax avoidance transactions.
  • Notice 2009-55, which contains a list of 4 transactions that the IRS has identified as transactions of interest. A transaction of interest is a transaction that the IRS and Treasury Department believe has a potential for tax avoidance or evasion, but about which the IRS and Treasury Department lack enough information to determine that the transaction is inherently a tax avoidance transaction.

    If you have any tax or business questions send en email to:  tax@icontaxgroup.com