Evade Tax Evasion Though they can be tempting, abusive tax shelters carry heavy penalties.

The IRS claims that tax-evasion scheme promoters use foreign banks and trusts to help individuals hide their incomes and create fake deductions. Under law, the federal government taxes all Americans worldwide on their incomes regardless of where they live or where they deposit funds.

If you feel tempted by the claims these promoters make, keep in mind that the penalties, interest and legal costs associated with an abusive tax shelter can be significant. To help you steer clear of illegal schemes, the IRS has prepared a list of red flags that should alert you to questionable promotions. For example, the service says be wary of deals that use foreign entities with no apparent business purpose other than reducing taxes. It's also a good idea to avoid promotions that promise "you'll never pay taxes again."

For more information on illegal tax-shelter schemes, including details of recent court cases, visit the IRS Web site and click on the Businesses tab, then on "Abusive Tax Shelters and Transactions."

SOURCE: Entrepreneur magazine