The courts have consistently held that non-deductible personal expenses cannot be transformed into deductible expenses by the use of trusts. A genuine charity must benefit in order to claim a valid charitable deduction . Charitable trusts that are exempt from tax are carefully defined in the tax law. Arrangements are not exempt charitable trusts if they do not satisfy the requirements of the tax law, including the requirement that their true purpose is to benefit charity. Furthermore, putative charitable payments made by a trust are not deductible charitable contributions where the payments are really for the benefit of the owner or the owner's family members.
Special rules apply to foreign trusts .
If an arrangement involves a foreign trust, taxpayers should be aware that a number of special provisions apply to foreign trusts with U.S. grantors or U.S. beneficiaries, including several provisions added in 1996. For example, a U.S. person that fails to report a transfer of property to a foreign trust or the receipt of a distribution from a foreign trust is subject to a tax penalty equal to 35 percent of the gross value of the transaction. In our experience, the promoters of these abusive schemes often advise potential clients not to contact their tax attorney or accountant because the formal education undertaken by those professionals will somehow preclude their understanding of the scheme. As professionals, we must be aware of what is being offered to our clients in order to be able to provide useful, learned advice. In that 1930's case, the Court permitted the taxpayer to recover basis first where the payments to be received in an installment sale were based upon the future production of a mine .