In the final segment of the “Dirty Dozen” List scheme and scam series, the IRS concludes with a warning to American taxpayers to watch out for scams and schemes by unscrupulous promoters who aggressively peddle false hopes with false claims while charging exorbitant fees.
The IRS has recently created the Office of Promoter Investigations (OPI) to focus on both participants and promoters of abusive tax avoidance transactions. The OPI coordinates service-wide enforcement activities. A word to the wise- the best defense for any taxpayer who is approached by a new promoter is to show caution: if it sounds too good to be true, it probably is.
These aggressively marketed abusive tax avoidance “deals” are broken down into the following categories:
- Syndicated conservation easements- Abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business.
- Abusive micro-captive arrangements- Scamming promoters, accountants, or wealth planners have been known to unlawfully persuade owners of closely-held entities to participate in schemes that lack many of the attributes of insurance, are often excessive and are being used to skirt tax laws in offshore captive insurance companies domiciled in Puerto Rico, Malta, and elsewhere.
- Improper claims of business credits- Improper claims for the research and experimentation credit generally involve failures to participate in, or substantiate, qualified research activities and/or satisfy the requirements related to qualified research expenses. To claim a research credit, taxpayers must adequately evaluate and appropriately document research activities over a certain period of time to establish the amount of qualified research expenses
- Improper monetized installment sales- Promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property and organize an abusive shelter through selling them monetized installment sales. These transactions occur when an intermediary purchases appreciated property from a seller in exchange for an installment note, which typically provides for payments of interest only, with principal being paid at the end of the term. In these arrangements, the seller gets a lion’s share of the proceeds but improperly delays the gain recognition on the appreciated property until the final payment on the installment note, often slated for many years later.
The IRS continues to pursue actions against promoters of these schemes as well as the taxpayers who participate in them. “We are stepping up our enforcement against abusive arrangements,” said IRS Commissioner Chuck Rettig. “Don’t be lulled into these shady deals. The IRS recommends that anyone who participated in one of these abusive arrangements should consult independent counsel about coming into compliance.”
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