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Submitted by: Puthan(VJ) Vijayan
Puthan(VJ) Vijayan is the Principal member of PMV Investment Advisors, LLC. The firm is a Registered Investment Advisor. VJ is a Certified Estate Planner and Registered Financial Consultant, with over 15 years of planning and investment experience.
This article appeared in the journal of personal finance volume 3, issue 4in 2004 international association of registered financial consultants (IARFC)
I am a member of the IARFC.
Abstract-financial planners and tax advisors must help clients reduce their tax obligations while using legal methods and avoiding what the treasury dept and the irs consider to be "abusive tax avoidance transactions" IRS publishes its annual 'dirty dozen' list of tax avoidance scams.
The article lists and explains the items on the list, and examples are given of activities that the justice dept has prosecuted. Guidance for staying on the right side on the law is given by reference to a treasury dept document outlining enforcement proposals.
'The trick for financial planners and tax advisors is to help their clients navigate the narrow path of tax avoidance without falling into the quagmire of tax evasion. Tax avoidance uses legal methods for planning one's financial affairs and structuring transactions to minimize tax liability.
Evasion steps outside the law by use of fraud or deception'
'tax evaders are those who willfully and intentionally fail to pay the correct amount of taxes. Professionals such as financial planners, attorneys and accountants can also be prosecuted if they participate in schemes to help clients illegally lower their taxes, or if they defraud their clients.'
'Misuse of trusts- number one of that list in 2004, involves misusing the legal instrument known as "trust". IRS actively investigates a number of trusts that are considered abusive.-in a case where five individuals abused trusts to commit mail and wire fraud and to defraud the IRS. 'Another instance-' a tax preparer who had advised clients to use trusts in an illegal manner by improperly reporting income and deductions. Another instance -described two attorneys, who were charged with defrauding investors of some $7million through the sale of fraudulent trust schemes'
Corporation sole- individuals who created and claimed church status for a company known as a 'corporation sole'; promoters of this scheme advise clients to transfer assets and income to the church. The clients continue to control the income and assets and continue to use them to pay living expenses. ''Clients were advised that they need not file tax returns.'
Offshore transactions- some tax payers admitted filing fraudulent returns by failing to report an interest in a financial account in a foreign country, when in fact they held one or more accounts' 'other tax payers filed "zero return" tax returns fraudulently reporting no income. One "zero return" promoter allegedly evaded more than $1million in taxes on the fees he had received from clients for his fraudulent advice by hiding his income and assets in offshore bank accounts, using wire transfers and debit cards to gain use of the money, using fictitious tax id numbers and various other illegal schemes.'
'Employment tax evasion’- involves various illegal schemes to avoid paying employment taxes.
'Other dirty dozen schemes-unscrupulous return preparers diverting client refunds to their own use. Misuse of disabled access credit; mislead African Americans into thinking they can get a special tax refund related to reparations for slavery; deduct personal expenses by setting up bogus home businesses; false arguments against paying taxes; identity theft; earned income tax credit scheme-share one tax payer's unneeded qualifying children with another client so both clients can qualify for the credit.'
'Financial planners should protect themselves by seeking guidance from us treasury'
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