Fraudulent Foreign and Domestic Trusts | |||||||||||||||
By: | IRS | ||||||||||||||
Date: | 07/03/2000 | ||||||||||||||
Fraudulent Foreign and Domestic Trusts
Promoters of abusive trusts can lead innocent taxpayers to financial ruin. The bottom line: "Don't Buy In!" What Is An Abusive Trust? Establishing a foreign or domestic trust for the purpose of hiding income and assets from taxation is illegal. Abusive Trust Schemes typically involve the creation of one or more trusts into which the taxpayer transfers his or her personal and/or business assets and to which the taxpayer assigns his or her income. The taxpayer, the promoter, or someone who will allow the taxpayer in reality to control the activities of the trust is then assigned as the trustee. The Facts About Trusts
Income cannot be shifted to another entity for tax purposes and must be reported by the individual who earned it. In addition, personal living expenses which were not deductible prior to the creation of a trust are not deductible by virtue of assignment of assets and income to a trust. No matter how carefully the trust documents are drafted, if the intent of the trust is to avoid taxes, the trust will be treated as a sham. In April 1997, the Internal Revenue Service issued Notice 97-24 and Information Release 97-19 warning taxpayers to avoid abusive trust schemes that promise bogus tax benefits, and to take steps to correct past participation in such trusts.
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