IRS’ 2022 “Dirty Dozen” list of tax scams

WASHINGTON — The Internal Revenue Service today warned taxpayers to steer clear of abusive tax avoidance schemes and the unscrupulous individuals who promote them. Three variations of these schemes – abusive trusts, abusive micro-captive insurance shelters and abusive syndicated conservation easements — are featured in the final installment of IRS’ 2022 “Dirty Dozen” list of tax scams.

Taxpayers are reminded that those who participate in illegal schemes may face prosecution, civil litigation and ultimately having to pay all taxes owed along with stiff penalties and interest.  Participants who utilize such schemes for tax evasion also risk imprisonment.

The three schemes described in today’s release all start with a legitimate tax-planning tool that is improperly distorted almost always by a promoter to produce benefits that are too good to be true and ultimately seriously compromise the taxpayer. Taxpayers should be highly skeptical of such claims.

Abusive tax evasion schemes involving trusts

Changes in bank secrecy laws of foreign jurisdictions have revealed a plethora of foreign tax evasion schemes involving trusts, and the IRS is actively examining these cases, as well as a variety of tax evasion schemes involving the use of domestic trusts.

Abusive trust arrangements often use multiple layers of trusts as well as offshore shell corporations and entities that are disregarded for U.S. tax purposes to attempt to hide the true ownership of assets and income or to disguise the substance of transactions.  Although these schemes give the appearance of separating responsibility and control from the benefits of ownership, such as through the use of purported mortgages or rental agreements, false invoices, fees for services never performed, purchase and sale agreements and distributions, the taxpayer in fact continues to control the structures and directs any benefits received from them.

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