Five Signs of a Tax Scam
The IRS says they are going after abusive tax shelters. So, how do you know if a strategy is legal or if it is an illegal scam? Read on for the five classic signs of an illegal scam.
Don’t Get Floored By an Unexpected Tax Bill!
Five Signs That You Might Have an Illegal Tax Scam:
(1) You must act right away
(2) It’s a secret
(3) No one else would understand
(4) It’s too good to be true
(5) You can’t have independent review
Contrast that with loopholes that are legal, ethical and moral!
(1) Loopholes follow public policy – own a business and invest in real estate
(2) Prove legal deductibility of expenses. Legal deductions are ordinary and necessary for your business
(3) Keep good records and current financial statements. They will support your deductions in case of audit and help you learn more about your business.
You don’t need to be afraid of the IRS, as long as you follow these three rules for loopholes. But, if you have a plan that doesn’t sound right and meets one or more of the five signs of an illegal scam, beware!
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I should have added this to the original blog post. The IRS has very tough penalties for illegal abusive tax shelters. If you are in one of their “listed” transactions, even if a financial planner, lawyer or accountant put you there, you could face interest and penalties and even jail time.
A couple that I see occasionally: VEBA accounts (491 welfare benefit plans) and Charitable Remainder Trusts, done wrong. I’ll talk about the RIGHT way to do a Charitable Remainder Trust at the March Advanced Pre-emptive Tax Strategy Training. You can use these legally to sell assets with no tax and avoid the IRS wrath. The VEBAs, on the other hand, are dangerous.