Key Takeaways
- Legitimate planning uses the law as written; aggressive positions push boundaries; fraud involves intentional misrepresentation.
- Red flags: "100% tax elimination," captive insurance for small portfolios, syndicated conservation easements, inflated cost segregation.
- The 20% accuracy penalty (IRC §6662) applies to negligence and substantial understatement; 75% for civil fraud.
- Written tax opinions from qualified professionals ($500-$3,000) provide reasonable cause defense against penalties.
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Test Your Knowledge
1.What distinguishes legitimate tax avoidance from aggressive tax positions that may trigger penalties?
2.What penalty applies when a taxpayer understates tax due to a position lacking substantial authority?
3.Which of the following is a red-flag strategy that frequently triggers IRS scrutiny?