Tax Loophole Law and Legal Definition

A tax loophole is an exploitation of a tax law which can reduce or eliminate the tax liabilities of the filer. It’s a technicality that makes it possible for the filer to circumvent a law's intent without violating its letter. Most often the original wording of a tax break is used to justify the use of a tax loophole. As there are yearly audits, most tax loopholes rarely survive more than a few years before some corrective legislative action is taken.