Is Your Tax Advisor Going to Put You in Jail?


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9-3-13

There are two types of people who become my tax clients at USTaxAidServices.

Group #1: They are making a lot of money, are paying too much in tax and want to pay less. They could be making money through a business, through real estate or some combination of both. Either way my clients are people who have made their own money. I don’t attract trust fund babies as clients.

I think that because my clients have earned their own money and it makes them especially mad to have to give it away in taxes at the rate they have to. Plus, in general, they know they aren’t going to have anyone to take care of them, so they need to build up their own support system themselves. That means building, or possibly re-building wealth that creates passive income. Tax erodes wealth, which means they have to work even harder. They want that drain to stop.

Group #2: They are planning to make a lot of money through business and/or real estate and want to set up a plan now that helps them do it. They could be rebuilding after the last few disastrous financial years or they could be building for the first time.

The two things they have in common, though, are an appreciation for saving taxes and the ability to follow a plan.

There is also one big risk that they face. If they’re not careful, they may fall for a tax scam artist. Over the past year, my business partner Megan and I have cleaned up dozens of tax scam plans. It has cost our clients often thousands of dollars to fix the mistakes in the plans set up by these tax scam artists, but at least they didn’t go to jail!

Here’s a real life example:

Client is a partner in a business that makes him high six figures each year. The business is an LLC (limited liability company) taxed as a partnership. He owns his share inside an S Corporation. We’ve talked back and forth about adding a C Corporation to reduce his taxes, but he didn’t want to overly complicate things so he took his required salary from the S Corporation, took every deduction he could and saved on self-employment tax by taking maximum distributions. He also had another S Corporation that made a small amount of income on the side.

He got busy with his business and missed our normal tax strategy update, until a few weeks ago. That’s when I found out that he had discovered a tax scam artist. He had added 4 additional structures and had changed the ownership of his S Corporation to an LLLP (which automatically triggers a C Corporation, because it revokes his S Corporation). I also found out that he’d been told to stop taking a salary out and that he’d be able to shelter 100% of his income in an IRA. (The limit of an IRA is $5,500.) Worst of all, he was about to move a significant amount of income to a foreign company, not report it in the US (even though it was earned in the US) and then pull it back to the US, nontaxable he thought, through a debit card. His tax scam artist told him it was perfectly legal.

And, of course, it is not. My client was still convinced that this guy knew what he was talking about, so thought it best to talk to the tax scam artist (who had already charged over $10,000) first before anything got changed.

Called on Monday and left a message. Nothing.

Called on Tuesday and left a message. Nothing.

Called on Wednesday…and guess what. Nothing

No response to emails. No response to phone messages. It’s like the guy has fallen off the face of the earth.

I don’t know if my client knows how close he came to being involved in an illegal tax dodge. He thought this other guy knew what he was talking about, but there were some telltale signs:

  1. The person with the illegal tax scam says no one else knows what he does, or if there is someone else, it’s a vague reference to someone who used to work for the IRS or a law firm you never meet.
  2. The person with the illegal tax scam is not a practicing CPA who will prepare and sign your return. In fact, it’s up to you to find a CPA who will follow the strategy and if you can’t, it’s because all CPAs are stupid.
  3. The person with the illegal tax scam is not only NOT a CPA, he’s also not a practicing attorney. He won’t give you an opinion letter, which is common practice with a tax attorney if there is a risky strategy.
  4. The person with the illegal tax scam gives you a “one size fits all” structure and does not learn about your own unique circumstances.
  5. The plan itself is the greatest thing since sliced bread, but it never completely gets set up and you never are told what it takes to maintain the structure.

We’re now playing catch-up to unwind the structures and avoid massive penalties.

Could your tax advisor cost you a jail sentence? In today’s world – YES! There are some things you simply can’t do and if you do, the penalties are steep ($300,000+) and jail sentences can be as much as 6 months.

Be careful who you trust. Pay the least amount of tax possible, but make sure you’re following a legal plan.

Want a review of your current plan? Now, through Sept 16th, I am offering tax reviews and consultations. You can sign up right now at http://www.USTaxAid.com/consultation or call Richard at 888-592-4769 to get more information.

Please note that the special offer expires on September 16th.


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