Does it sound too good 

to be true? It probably is!

Publication 3995 (Rev. 3-2023) Catalog Number 33989Q 

Department of the Treasury Internal Revenue Service

www.irs.gov

Recognizing 

Illegal Tax 

Avoidance 

Schemes

Questions To Ask Yourself...

Am I being asked to:

• Underreport my income?

• Intentionally omit income?

• Overstate the amount of my deductions?

• Create new entities?

• Make false entries in my books and records?

• Claim personal expenses as business expenses?

• Claim false deductions?

• Put false information on my tax return?

• Hide or transfer assets or income?

If you answered Yes to any of these questions, then 

you are probably being asked to participate in an 

illegal tax avoidance scheme.

The IRS prosecutes promoters of tax avoidance 

schemes, preparers of fraudulent tax returns, and 

taxpayers who knowingly participate.

Need Additional Information?

The IRS web site has educational materials to help 

taxpayers avoid abusive tax schemes. Select Tax 

Fraud at www.irs.gov.

Report an illegal tax avoidance scheme or an abusive 

tax return preparer by sending a completed Form 

14242, Report Suspected Abusive Tax Promotions or 

Preparers, and any supporting materials by mail to:

IRS Lead Development Center

Stop MS5040

24000 Avila Road

Laguna Niguel, California 92677-3405

Or by Fax: 877-477-9135

Form 14242 is available on IRS.gov by searching for 

the form number.

Do these sound too 

good to be true?

“I Can Get You the EITC”

“Put Your Money in a Trust and 

Never Pay Taxes Again”

“Use a Charitable Trust to 

Eliminate Income”

“I Don’t Pay Taxes – Why Should 

You?”

“Do Not Pay Taxes on Capital 

Gains”

“Deduct Personal Expenses”

“The IRS Does Not Want You to 

Know About This”

“So New, Your Tax Professional 

Doesn’t Know About It”

“I Can Get You a Big Refund”

Promoters often advertise at investment or tax seminars, through the local 

media or on the Internet. If the promotion sounds too good to be true, it may 

be an illegal tax avoidance scheme. 

There are a large number of illegal tax 

avoidance schemes. These schemes 

are typically promoted with the promise 

of reducing or eliminating income and 

other types of taxes.
EITC Fraud

Unscrupulous tax professionals will place false 

information on the tax return to maximize the amount 

of the Earned Income Tax Credit (EITC). The return 

preparer may report a false business on the tax return, 

or may “share” one taxpayer’s qualifying children 

with another taxpayer to allow both to claim the 

maximum EITC. For example, if one client has four 

children, the return preparer only needs to list the first 

two children to get the maximum credit. The return 

preparer will offer to pay the first client a fee to list 

the other two children on another client’s return. Both 

the return preparer and the taxpayers participating in 

this scheme could be subject to civil and/or criminal 

penalties.

“Put Your Money in a Trust and Never Pay 

Taxes Again.”

Promoters of abusive trust schemes may charge a 

fee for “trust” packages. The fee enables taxpayers to 

have trust documents prepared, to use foreign and/or 

domestic trustees as offered by promoters or to use 

foreign bank accounts and corporations. If a trust is 

legitimate, ownership of the trust assets is completely 

separate from your control and benefit.

“Use a Charitable Trust to Eliminate Income”

Promoters advise taxpayers to establish complex 

charitable trusts to avoid reporting income and to 

claim inflated charitable deductions. While charitable 

trusts are a legal way to donate to charities, the trusts 

must meet specific legal requirements. Promoters 

create trusts that do not meet these legal requirements and they have no legal tax benefits for the 

taxpayers who create them.

“Never Pay Any Taxes Again!”

Promoters may suggest that you, as an employer, 

NOT withhold federal income tax or employment 

taxes from wages paid to your employees. This 

scheme is based on an incorrect interpretation of the 

tax law; the courts have rejected all variations of this 

scheme.

“I Don’t Pay Taxes – Why Should You?”

Promoters may talk about how they don’t file or pay 

taxes and then charge people a fee to share their 

“secret.” The secret they don’t reveal is that many of 

them actually do file and pay taxes — they just won’t 

publicly admit it. 

“Do Not Pay Taxes on Capital Gains”

Promoters promise to eliminate taxes on capital gains 

on property you sell if you first transfer the property 

to a trust, or if you sell the property to a third-party 

working with the promoter, or if you use some other 

scheme created by these promoters. Seek a second 

opinion from a qualified tax professional before using 

any of the highly questionable schemes.

“Deduct Personal Expenses, such as the 

Cost of Your Residence or Your Child’s 

Education Expenses”

Participants incorrectly claim that non-deductible 

personal living expenses can be claimed as deductible business expenses by transferring ownership of 

assets or income to a trust, partnership, or other entity. 

Any investment scheme that claims you can deduct 

these types of expenses should be considered highly 

questionable.

“The IRS Doesn’t Want You to Know About 

This.”

If there are legal deductions that can reduce your 

taxes, the IRS wants you to know about them and use 

them. The mission of the IRS is to provide America’s 

taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. If you 

have any questions about your taxes, please contact 

the Internal Revenue Service at 1-800-829-1040.

“So New, Your Tax Professional Doesn’t 

Even Know About It.”

Promoters use this phrase to discourage you from 

seeking professional advice about new tax laws. 

However, if there is a new law that could reduce your 

taxes, a legitimate tax professional should encourage you to seek a second opinion. You should even 

ask for a reference just in case your tax professional 

really does not know about it yet. If the investment cannot stand the scrutiny or the review of an 

unbiased third party, it is probably one you should 

avoid.

“I Can Get You a Big Refund...for a Fee!”

Refund scheme promoters may give you a phony 

Form W-2 or Form 1099 that shows a large withholding credit or advise you to claim a credit for federal 

fuel taxes so it appears you qualify for a big refund. 

They may promise to split the refund with you. The 

IRS catches most of these false refund claims before 

they go out, and if a refund is issued it is usually 

discovered. The participant will have to repay the 

entire refund, including the portion split with the 

promoter, along with stiff penalties and interest.

3 things to remember:

1. You are responsible and liable for the 

content of your tax return.

2. Anyone who promises you a bigger 

refund without knowing your tax 

situation could be misleading you.

3. You should never sign a tax return 

without looking it over to make sure it 

is honest and correct.