Safe Harbor Rule

The Safe Harbor Rule are.

guidelines provided by the U.S. Internal Revenue Service that indicate specific parameters a taxpayer can follow to ensure favorable tax treatment or to avoid unfavorable treatment. (Safe Harbour: Where tax authorities give general guidelines on the interpretation of tax laws, these may state that transactions falling within a certain range will be accepted by the tax authorities without further questions). An example is a provision enacted in 1981 to guarantee sale and leaseback treatment to certain transactions if specific requirements are met. The purpose of this provision was to clarify how loss companies could “sell” the tax benefits accruing to them on new asset purchases by entering into sale/leaseback transactions with profitable companies. The intent of the provision was to generate an immediate cash flow for such loss companies, rather than to defer the benefits through carryover provisions.