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Tax Shelters to Steer Clear of

To avoid trouble, stay away from these tax shelters.

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This story appears in the February 2006 issue of Entrepreneur. Subscribe »

Many entrepreneurs may not be getting sound tax advice from their financial advisors. Beware of these abusive tax shelters--no matter how a financial advisor may spin them, they're still illegal.

1. Setting up a new entity and transferring assets into it to avoiding paying income taxes: This is tax evasion. Surprisingly, business owners still buy into this advice from shady financial advisors. The most recent scheme the IRS successfully prosecuted netted almost $4 billion in settlements and involved about 750 corporate executives. The scam was sold mostly to corporate executives, who transferred their stock options to a family-controlled partnership, thereby avoiding income tax liability.

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