Beware of abusive tax avoidance schemes
Channel: Accounting Instruction, Help, & How To
Date: 2023-04-05

Beware of abusive tax avoidance schemes
https://www.irs.gov/newsroom/dirty-dozen-beware-of-abusive-tax-avoidance-schemes

Today the Internal Revenue Service closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling bogus tax schemes aimed at reducing taxes or avoiding them altogether.

These schemes can take many shapes, ranging from abusive deals involving syndicated conservation easements and micro-captive insurance arrangements. They can also involve an international component, such as hiding cash and digital assets offshore or using Maltese foreign individual retirement accounts or foreign captive insurance.

"These tax avoidance strategies often target high-income individuals seeking to reduce or eliminate their tax obligation," said IRS Commissioner Danny Werfel. "Sometimes taxpayers are conned into believing they can participate in these schemes. People should always look for advice from an independent, trusted tax professional, not a promoter focused on aggressively marketing and pushing questionable transactions."

This marks the final day of the IRS annual Dirty Dozen campaign - a list of 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. Some items on the list are new and some make a return visit. While the list is not a legal document or a formal listing of agency enforcement priorities, it is intended to alert taxpayers and the tax professional community about various scams and schemes at large.

Today, the IRS highlights the following Dirty Dozen items:

Bogus tax avoidance strategies
Micro-captive insurance arrangements
Also called a small captive, a micro-captive is an insurance company whose owners elect to be taxed on the captive's investment income only. Abusive micro-captives involve schemes that lack many of the attributes of legitimate insurance. These structures often include implausible risks, failure to match genuine business needs and in many cases, unnecessary duplication of the taxpayer's commercial coverages. In addition, the "premiums" paid under these arrangements are often excessive, reflecting non-arm's length pricing.

Abusive micro-captive transactions continue to be a high-priority enforcement area for the IRS. The IRS has won all micro-captive Tax Court and appellate court cases decided on their merits since 2017.

Syndicated conservation easements