Each year, the Internal Revenue Service (IRS) compiles a list of prominent tax schemes that scammers use to exploit individuals and businesses. These schemes can arrive through email, text messages, and even traditional mail. This year, the IRS has placed particular emphasis on scams targeting high-asset individuals.
Virtually anyone can be scammed by someone who is determined and tries hard enough. People of all ages and all walks of life can be conned. But for high-asset taxpayers in particular, wealth, real estate, and domestic and offshore investments can lead criminal groups to your door.
Notes IRS Commissioner Danny Werfel, “High-income taxpayers can be vulnerable to being pulled into these aggressive schemes and scams. Taxpayers should be extra careful on tax maneuvers that seem too good to be true. Beware of advertisements for seemingly ideal tax structures that distort tax laws and leave victims with civil or criminal tax penalties.”
The IRS highlights three common schemes being frequently pitched to wealthy investors:
- Charitable Remainder Annuity Trusts (CRAT): Be aware of marketers or promotional pop-ups offering to structure a CRAT. A CRAT is an irrevocable trust into which you can donate assets to a charity. You can also withdraw income from the CRAT for life or for a particular period of time. The misapplication of rules around a CRAT can leave a taxpayer holding the bag if the IRS reviews and negates the deal.
- Monetized Installment Sales: Marketers advertise schemes by which a taxpayer can defer a gain following the sale of appreciated property. Once a wealthy taxpayer is on the hook, the promoter then creates an abusive tax shelter by selling monetized installment sales. It generally does not end as profitably as promised.
- Art Donation Fraud: In this scam, promotors reel in wealthy taxpayers interested in taking a deduction on art that is donated for a higher value than purchased. Oftentimes, the scamster will sell “art” at a reduced price, arranging for shipping, storage, and appraisal. The taxpayer can wait a year, donate the artwork to charity, and realize a sweet tax deduction. Or – the appraisal does not ring true and the taxpayer loses money on the deal.
Said Mr. Werfel, “There’s growing risk for taxpayers pulled into aggressive schemes as the IRS continues to accelerate and expand our compliance work involving high-income individuals. The IRS reminds taxpayers that relying on an independent tax or legal professional can help avoid problems with aggressive promoters.”
If you are approached with a deal that is too good to be true or offered advice on investment schemes with which you are not familiar, speak with a reputable tax attorney to ensure you are not victimized by tax fraud.
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