An abusive shelter generally offers inflated tax a savings which are disproportionately greater than your actual investment placed at risk. Tax shelters reduce current tax liability by offsetting income from one source with losses from another source. The IRS will not allow a shelter which is "abusive." Generally, you invest money to generate income. However, an abusive tax shelter generates little or no income, and exists mainly to reduce taxes unreasonably for tax avoidance or evasion. In comparison, a legitimate investment often produces income and involves a risk of loss proportionate to the expected tax benefit. Abusive tax shelters are often marketed in terms of how much you can write off in relation to how much you invest. The IRS has identified certain abusive transactions as listed transactions. A series of tax laws have been designed to halt abusive tax shelters.

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