We have seen schemes offered which attempt to combine corporate and trust tax law provisions in a single entity to provide no less than amazing tax benefits for the taxpayer. Of course, the Notice acknowledges the many legitimate uses of trusts. Abusive trust arrangements are typically promoted by the promise of tax benefits with no meaningful change in the taxpayer's control over or benefit from the taxpayer's income or assets. These promised benefits are inconsistent with the tax rules applicable to trusts and the other entities that may also be involved. Funds may flow from one trust to another trust by way of rental agreements, fees for services, purchase and sale agreements, and distributions.
Some trusts purport to involve charitable purposes.
In some situations, one or more foreign trusts may also be part of the arrangement. The Business Trust . The trust makes payments to the holders of these certificates, deducting such payments as either a business expense or a trust distribution, which purports to result in the reduction of the taxable income of the business. The Equipment or Service Trust . The equipment trust is formed to hold equipment that is rented or leased to the business trust, often at inflated rates.