Safe Harbor Definition
This term has several definitions. The first refers to a legal condition that reduces or eradicates liability when good faith is demonstrated. Safe harbor also refers to an accounting practice where certain tax or legal ramifications are avoided by allowing an easier method of determining a tax consequence. Such practices can occur when a company is losing money and cannot declare an investment credit. The claim is transferred to a profitable corporation who can claim the credit thus creating a “safe harbor” for the troubled company. The profitable company leases the investment back to the unprofitable company but does not reap the tax savings.