Newspaper article St Louis Post-Dispatch (MO)

IRS Cracks Down on Trusts Targets Plans Set Up Only to Avoid Taxes

Newspaper article St Louis Post-Dispatch (MO)

IRS Cracks Down on Trusts Targets Plans Set Up Only to Avoid Taxes

Article excerpt

Here's the pitch: Rich people know the secrets of protecting their estates from ruinous taxation. Now you, too, can take advantage of these techniques to hold onto your hard-earned assets.

Don't fall for it, the IRS says.

Estate planning seminars and dubious legal services have been aggressively promoted with that message, and now kits and services are being sold over the Internet with the same pitch. The promoters assure people that by putting their homes, businesses or even marketable securities into a variety of trusts, they will escape income, self-employment and estate taxes. But the Internal Revenue Service calls trusts that are set up solely for tax avoidance "abusive trusts," and it announced last month that it was cracking down on them. "Every one of these looks like smoke and mirrors," said Evelyn Capassakis, director of estate planning for Coopers & Lybrand, the accounting firm. "Now you see it, now you don't." Many promoters of trusts that the IRS finds abusive aim their pitches at owners of small businesses, Capassakis said, or at people who are likely to be unsophisticated when it comes to tax law and believe that "the rich are aware of loopholes." Often, such trusts are set up in layers - a family residence trust, or a business-equipment trust, say, which is then put into a foreign-based asset-protection trust that the promoters imply the IRS will not discover. These strategies, however, leave clients open to stiff penalties from the IRS. "They are likely to wind up needing a white-collar criminal defense lawyer," Capassakis said. James Donelson, the chief compliance officer for the IRS, said in a statement: "We receive more than three million trust returns annually and will identify questionable ones for further review. We'll assess taxes and penalties against the participants and promoters of the trusts we find abusive and seek criminal charges where warranted. …

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