Last March, the Service sent out a nebulous communication about abusive trusts. The actual text can be found at the following link.
https://www.irs.gov/businesses/small-businesses-self-employed/abusive-trust-tax-evasion-schemes-facts-section-i
In the communication, the IRS details the following schemes being targeted…
1 – Reduction or elimination of income subject to tax
2 – Deductions for personal expenses paid by the trust
3 – Depreciation deductions of an owner’s personal expenses paid by the trust
4 – Depreciation deductions of an owner’s personal residence and furnishings
5 – A stepped-up basis for property transferred to the trust
6 – The reduction or elimination of self-employment taxes
7 – The reduction or elimination of gift and estate taxes.
A month later in April, the Fed’s indicted six individuals for, “conspiring to promote, sell or administer abusive trusts.” In May, an Arizona tax preparer who was indicted pleaded guilty to preparing 500 fraudulent income tax returns for 60 participants in the abusive trusts promoted by these defendants.
The preparer also admitted to hiding $60M worth of taxable income inside the illegal schemes that cost the Government $17M in tax. One of those participants was a dentist named Ryan Ulibarri who owned a family dental practice in Fort Collins, CO.
He paid these individuals $50K to set up a tax shelter scheme which included three different trusts and a charitable foundation. Let’s take a moment and think this through.
Just because a trust owns something doesn’t mean it isn’t taxable. In most instances, assets with taxable income owned by trusts pay the highest income tax rates legally allowable by law in the US.
An example of this is that once a trust has $14,451 or more in taxable regular income, it pays a 37% Federal Income Tax. If that same income was on a Married Filing Joint Return, the 37% income tax bracket wouldn’t kick in until there was $731,201 in income in 2024.
The indictment against Dr. Ulibarri alleges the following…
1 – That each of the trusts inside the chain were owned by another one of the trusts. By hiding ownership of the assets inside this daisy chain that was ultimately owned by a charitable foundation, taxes were illegally avoided.
2 – The three trusts reduced their income to near or almost nothing by taking deductions for disbursements to the trusts that owned them.
3 – The promoters provided Dr. Ulibarri with two different sets of trust documents. The shorter version was for him to take to banks so that he could open checking accounts. The longer version was to be kept private and confidential.
4 – Dr. Ulibarri also deducted many personal expenses that are normally non-deductible through the trusts that were paying them.
Let me leave you with this…
The good doctor has not yet had his day in court but there’s something that should be noted. The IRS normally only adjudicates 1,800 cases every year and their conviction rate is usually above 90%.
I’ll bet you dimes to donuts that this guy is going to owe a ton of tax, interest, and penalty along with doing a sizable stretch in the joint.
Let’s also remember that Dr. Ulibarri is only one of the 60 individuals that the tax preparer admitted to providing this sort of scheme to. You just know that the Service is going after the other 59.
Who does your returns has everything to do with whether or not you get a dreaded knock on your door.
In the past 34 years that I’ve practiced, I can’t tell you how many times people have brought these sorts of illegal tax shelters and schemes to me. I basically tell them that they’re out of their mind and get them out of my building ASAP.
There’s a couple of things that all should understand.
If it’s income on one return, it’s probably income on all of them. And if it isn’t deductible inside one type of entity, it probably isn’t deductible inside the rest. Period. End of story. Fahgetabadit.
I don’t care what attorney, financial planner, or bad excuse of an accountant recommends this sort of thing. I don’t care how nice their website or their offices happen to be.
Don’t be a fool. File and pay your taxes in a timely manner. Please remember the prophetic words of P.T. Barnum.
There’s a sucker born every minute and two born to take him.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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