Safe harbor

1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.

2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. In effect, this gives the target company a "safe harbor."

3. An accounting method that avoids legal or tax regulations and allows for a simpler method (usually) of determining a tax consequence than those methods described by the precise language of the tax code.

Investopedia Says:
1. In the first case, under SEC rules, safe-harbor provisions protect management from liability for making financial projections and forecasts made in good faith.

2. When trying to scare away sharks, it sometimes helps to stink up the water.

3. Here's an example of an accounting safe harbor: a firm is losing money and therefore cannot claim an investment credit, so it transfers this claim to a company that is profitable and can therefore claim the credit. Then the profitable company leases the asset back to the unprofitable company and passes on the tax savings.

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1. -financial or accounting step that avoids legal or tax consequences. Commonly used in reference to safe harbor leasing, as permitted by the Economic Recovery Tax Act of 1981 (ERTA). An unprofitable company unable to use the Investment Credit and Accelerated Cost Recovery System (ACRS) liberalized depreciation rules, could transfer those benefits to a profitable firm seeking to reduce its tax burden. Under such an arrangement, the profitable company would own an asset the unprofitable company would otherwise have purchased itself; the profitable company would then lease the asset to the unprofitable company, presumably passing on a portion of the tax benefits in the form of lower lease rental charges. Safe harbor leases were curtailed by provisions in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

2. -provision in a law that excuses liability if the attempt to comply in good faith can be demonstrated. For example, safe harbor provisions would protect management from liability under Securities and Exchange Commission rules for financial Projections made in good faith.

3. -form of Shark Repellent whereby a Target Company acquires a business so onerously regulated it makes the target less attractive, giving it, in effect, a safe harbor.

Rules that, if followed, will guarantee compliance with the law.
Example: The Internal Revenue Code is not specific as to exactly the conditions when a Limited Partnership will be taxed as a partnership or a corporation. The Irs has published safe harbor rules that are more specific than the IRC.

Also, in a Tax-Free Exchange a safe harbor is to use an intermediary to hold cash or property, rather than have the principals do so. This avoids the possibility of a seller's violating conditions of Constructive Receipt which would make the exchange taxable.

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