RS takes fraudulent trust 

eriously. It is a matter of main

c confidence in the fairness of

Recommending prosecution of

late the tax laws demonstrates

ommitment to ensuring all 

pay their fair share of taxes.

IIRS has recently 

en a national coordinated 

dress fraudulent trust schemes. 

ls about the IRS policy regard

ent trusts, read IRS Public

nt Notice 97-24 which warns

void fraudulent trust schemes

ertise bogus tax benefits.

Notice 97-24 can be found 

Internet at www.irs.gov)

s too good to be true; it is!

Report Suspected 

x Fraud to your local 

IRS office.

all 1-800-829-0433.

Department of the TreasuryInternal Revenue Servicew w w .irs.govPublication 2193(Rev.7-2002)Catalog Number 24843F

mation go to: www.treas.gov/irs/ci
blishing a trust will reduce or

taxes or self-employment taxes.

be paid on the income or assets

uding the income generated by

rust. The responsibility to pay

ither the trust, the beneficiary 

will retain complete control over

assets with the establishment of 

 trust arrangements, you must

t control over income and assets.

rustee is designated to hold legal

ssets, to exercise independent

rust, and to manage the trust. 

ayers may deduct personal

the trust on their tax return.

tible personal living expenses

rmed into deductible expenses 

ing assets and income to a trust.

ayers can depreciate their per

nd furnishings and take them as

ir tax return.

n of a taxpayer’s residence and

lely for personal use is not deduct

ssigning the residence to a trust.

ke responsibility for their own

taxpayer choose to participate in

scheme, the taxpayer will not be

ential civil and criminal sanctions.

 trust arrangements 

Don’t be misled by the word “trust.” Just becausethe name “trust” is associated with financialarrangements does not make it a legitimate trust.The following arrangements have been used to promote fraudulent trust schemes:1. Business Trust: This involves the transfer of an

on going business to a trust. Also called an unincorporated business organization, a pure trust or a constitutional trust, it makes it appear that thetaxpayer has given up control of his or her business. In reality, however, through trustees or otherentities controlled by the taxpayer, he or she stillruns day-to-day activities and controls the business’ stream of income. Such arrangements provideno tax relief.

2. Equipment or Service Trust: This trust is formed

to hold equipment that is rented or leased to thebusiness trust, often at inflated rates. The businesstrust reduces its income by claiming deductions for payments to the equipment trust. This type ofarrangement has the same pitfalls as the businesstrust. It provides no tax relief.

3. Family 

Residence Trust: Taxpayers transfer family

residences, including furnishings, to a trust, whichsometimes rents the residence back to the taxpayer.The trust deducts depreciation and the expenses ofmaintaining and operating the residence including,pool service and utilities. These expenses are notdeductible and the IRS will disallow them.4. Charitable Trust: Taxpayers transfer assets orincome to a trust claiming to be a charitable organization. The trust or organization pays for personal,educational, and recreational expenses on behalf of the taxpayer or family member. The trust thenclaims the payments as charitable deductions on itstax returns. These alleged charitable organizationsoften are not qualified and have no IRS exemptionletter. Therefore, contributions are not deductible.5. Foreign Trust: These trusts often are located in foreign countries that impose little or no tax on trusts

and also provide financial secrecy. Typically, abusiveforeign trust arrangements enable taxable funds toflow through several trusts or entities until thefunds are ultimately distributed or made availableto the original owner. The trust promoter claimsthat this distribution is tax-free. In fact, the incomefrom these arrangements is fully taxable.

F

lse 

ims concerning 

n include: