The IRS and DOJ Are Targeting “Abusive Trust Tax Evasion Schemes”

Among several other enforcement priorities, the Internal Revenue Service (IRS) and U.S. Department of Justice (DOJ) have been targeting “abusive trust tax evasion schemes” in 2023. Their focus on these schemes will likely continue into 2024 as well, and, as a result, taxpayers and promoters of these schemes must be prepared to defend themselves if necessary.

The IRS defines an abusive trust tax evasion scheme as any trust arrangement that is used “to hide the true ownership of assets and income or to disguise the substance of transactions.” While trusts have many lawful trust and estate planning purposes, trusts can be—and often are—abused for federal tax purposes. With the IRS and DOJ cracking down on these schemes, many taxpayers and promoters are likely to find themselves in need of an experienced Virginia criminal tax lawyer.

IRS Releases Abusive Trust Tax Evasion Scheme Toolkit

Highlighting the IRS’ focus on abusive trust schemes, the agency recently released an Abusive Trust Tax Evasion Scheme Toolkit. The Toolkit discusses what constitutes an “abusive” trust scheme and gives examples of red flags that are likely to trigger tax audits and criminal tax evasion investigations. As the IRS explains in the Toolkit, some of the hallmarks of an abusive trust tax evasion scheme include:

• Multiple trusts that each hold different assets of the taxpayer
• Vertical layering of trusts, with each trust distributing income to the next layer
• Payment of rent, service fees and distributions from one trust to another
• Claiming a stepped-up basis for assets contributed to a taxpayer’s trusts
• Depreciation and deductions that substantially reduce (or eliminate) taxpayers’ individual tax liability

While none of these are necessarily indicative of tax evasion, trust arrangements that present these hallmarks are likely to trigger IRS scrutiny. If IRS agents or investigators uncover evidence of intentional fraud, an audit or investigation may lead to prosecution by the DOJ.

DOJ Announces Charges for Abusive Trust Tax Evasion Scheme

This happened recently. On September 25, 2023, the DOJ announced charges against two individuals who are accused of both using and promoting an abusive trust tax evasion scheme. The DOJ secured an indictment following an investigation, and the individuals are now facing charges of tax evasion, conspiring to defraud the United States, and aiding and assisting in the preparation of false tax returns. If convicted, they each face more than a decade of federal prison time.

Are You At Risk?

Given the IRS’ and DOJ’s focus on abusive trust tax evasion schemes in 2023 (and likely beyond), are you at risk? If you have concerns, you should consult with a Virginia criminal tax lawyer promptly. Taxpayers and promoters have options for resolving controversies with the IRS, and a proactive approach will yield the best possible outcome in most cases.

Request an Appointment with Virginia Criminal Tax Lawyer Kevin E. Thorn

For more information about the IRS’ and DOJ’s efforts to target abusive trust tax evasion schemes, contact us today. Call 703-752-3752 or send us a message online to request an appointment with Virginia criminal tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.