Wednesday, February 17, 2016
The US Internal Revenue Service (IRS) has warned taxpayers that the use of "abusive tax shelters and structures to avoid paying taxes" continues to be a major problem during the current 2016 filing season.
"Taxpayers should steer clear of unscrupulous promoters who sell phony tax shelters with no real purpose other than to avoid paying what is owed," said IRS Commissioner John Koskinen. "These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place."
The IRS pointed out that such tax schemes "have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions."
It disclosed that "multiple flow-through entities [such as partnerships] are commonly used as part of a taxpayer's scheme to evade taxes. Ö They are designed to conceal the true nature and ownership of the taxable income and/or assets." Other structures involve the use of micro captive insurance companies.
Trusts also commonly show up in such tax structures. "There are legitimate uses of trusts in tax and estate planning," the agency said, but the IRS "commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, reduced (even to zero) self-employment taxes, and reduced estate or gift transfer taxes."