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Avoid Falling Victim to Abusive Tax Schemes #2: Abusive Trust Scams

September 1st

The IRS estimates that by the year 2015, over $4.8 trillion in wealth will be inherited or transferred from one generation to the next. Much of this will be transferred through a variety of trusts. In fact, filing of trust returns are now the third most commonly filed income tax return behind individual and corporate returns.

Though the majority of these trusts are conducted legally, there is still a significant margin for fraud. With the recent rise in trusts, trust tax evasion schemes have also increased. Such scams are generally aimed at wealthy individuals, small business owners, and professionals such as doctors and lawyers who are most likely to pursue trust investment.

Commonly Promised Benefits of Anti-Trust Scams

The IRS has identified two basic kinds of anti-trust scams: the domestic package and the foreign package. Both sorts are generally promoted by a network of promoters and sub-promoters who have charged between $5,000 and $70,000 for their services. This fee enables taxpayers involved to have trust documents prepared, to utilize foreign and domestic trustees offered by promoters, and to use foreign bank accounts and corporations.

The promises made by trust scam promoters vary. However, these are some of the most common:

  • Reduction or elimination of income subject to tax
  • Deductions for personal expenses paid by the trust
  • The reduction or elimination of self-employment taxes
  • The reduction or elimination of gift and estate taxes
  • Depreciation deductions of an owner’s personal residence and furnishings

Taxpayers should be aware that trust arrangements will not provide the tax benefits promised by promoters. Furthermore, in many cases, participation in such scams may leave both the promoters and the taxpayers subject to IRS penalties.


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