By John Stylianou, Accountant
The economic slowdown hasn’t affected one group of people – promoters selling tax shelters. Some shelters are perfectly legal, but many are termed abusive by the IRS.
Because illegal shelters cost the Treasury billions of dollars in lost taxes, the IRS is stepping up enforcement efforts against promoters and buyers of these shelters.
How can you avoid illegal tax shelters? It’s not always easy for the average taxpayer to know when a tax shelter is illegal. The tax code is long and complex, and there’s sometimes a fine line between legal and abusive. But the IRS has the ability to disallow any transaction if it believes it is a sham. The final decision may then be up to the Tax Court.
The IRS is likely to challenge any arrangement that has no “economic substance” – in other words a transaction that lacks an obvious business or economic purpose or that shelters other income not related to the transaction.
Beware of shelters involving complicated financial transactions, especially if they involve setting up new domestic or offshore companies or partnerships. Use your common sense to decide if the proposal is related to your normal business or investment activities. And as always, be suspicious of any scheme that seems too good to be true. Don’t fall for a “hard sell” approach or limited time offers.
The best protection is to review any proposal with your own tax advisor. If a scheme is legal, the promoters shouldn’t fear a second opinion. For assistance, contact our office.
Seniors: Avoid becoming a victim of consumer fraud
Senior citizens are common targets of scams and high-pressure sales pitches. Avoid becoming a victim by being aware of some of the techniques con artists use.
Telephone solicitation scam artists try to get your credit card number so they can make unauthorized purchases. Be suspicious if you are pressured to make a quick decision or pay to claim a prize. Do not give your credit card number over the phone to any stranger. The chances are that you will never see the prize, and, worse yet, crooks now have your credit card number to use until you cancel it.
Home improvement offers involve door-to-door salespeople promising a one-day-only special deal. Many of these offers lead to incomplete or inferior work. Beware if the offer does not include a written estimate or contract. Do not sign anything unless you know what you are getting and understand what you are signing.
Some insurance salespersons may ask for an appointment to discuss changes in Medicare or other government programs. Their real purpose is to sell insurance. Know the facts to avoid buying insurance you really do not need. Take any insurance offers to your trusted insurance agent before signing or paying for any new policies.
Investment schemes often employ high-pressure tactics. If you are asked to sign today because the deal will not be available tomorrow, walk away. If something is a good deal today, it will still be a good deal after you’ve had time to check with your advisors.