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Tax Shelter Investigations

Maryland Tax Lawyer – Tax Shelter Investigations

Taxpayers who are caught using abusive tax structures and transactions to avoid paying their fair share of taxes are likely to face serious consequences.  The Internal Revenue Services has devoted significant resources to identifying and combatting tax avoidance schemes used by both taxpayers and promoters.  The IRS has explained the use of abusive tax shelters and structures to avoid paying taxes continues to be a serious problem and is included on its annual list of “Dirty Dozen” tax scams.  The “Dirty Dozen” list sets forth common tax scams that may occur at any time but tend to peak when people are preparing their tax returns during tax filing season. 

The IRS Criminal Investigation (CI) Division has established a nationally coordinated program to shutdown abusive tax avoidance schemes.  Abusive tax structures are often very complex, involving sophisticated multi-layer transactions designed to conceal the true ownership and nature of the taxable assets and income.  The IRS has noted that these schemes, which are often characterized by the use of LLCs, LLPs, International Business Companies, offshore credit/debit cards, foreign financial accounts and other instruments, employ multiple flow-through entities to facilitate the tax evasion.

Individual taxpayers and businesses found using illegal tax shelters are likely to face substantial penalties and interest.  Moreover, the IRS Criminal Investigation Division works hand in hand with the U.S. Department of Justice to stop these abusive scams and prosecute the individuals behind them.

Tax Shelter Promoter Investigations

In addition to examining the taxpayers who may be participating in abusive tax shelters, the IRS works to identify and investigate the “promoters” who create, market, and sell these illegal schemes.  The IRS defines a tax shelter promoter to include any person who:

  1. Organizes (or assists in the organization of) –  (i) a partnership or other entity, (ii) any investment plan or arrangement, or (iii) any other plan or arrangement; or 
  2. Participates (directly or indirectly) in the sale of any interest in any entity or plan or arrangement referred to in subparagraph A; and 
  3. Makes or furnishes or causes another person to make or furnish (in connection with such organization or sale) – (i) a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter, or (ii) a gross valuation overstatement as to any material matter. 

The IRS examines promoters to determine whether they have complied with the regulations requiring promoters to register potentially abusive tax avoidance transactions and maintain and provide a list of investors to the IRS upon request.  Promoters who fail to meet the registration and investor list requirements may face monetary penalties.  In addition, individuals and entities found to have promoted an abusive tax shelter face steep civil penalties – up to $1,000 for each promoter activity or, if the promoter establishes it is less, 100 percent of the income the promoter derives or will derive from the activity.  The IRS may also refer a promoter case to the U.S. Department of Justice for criminal prosecution. 

Discuss Your Tax Related Concerns with Thorn Law Group

If you have concerns regarding a tax structure or transaction, or are facing a tax shelter promoter audit, contact Thorn Law Group today at ket@thornlawgroup.com or 240-235-5096.  The legal professionals in our Maryland offices are experienced tax attorneys who represent clients in a complete range of civil and criminal tax law matters.  We will carefully evaluate your case and review all options that may be available to you.


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