IRS is Getting Tough On Tax Scam Promoters | USTaxAid

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IRS is Getting Tough On Tax Scam Promoters

Written by Diane Kennedy, CPA on October 8, 2021

IRS is Getting Tough On Tax Scam Promoters

A tax scam promoter or victim who doesn’t want to admit yet that they are a victim is always happy to tout the latest illegal tax strategy. The consequences can be excess tax, penalties and even jail.

Why Do People Ask Random People Important Questions on Social Media?

Ask a tax or legal question on social media and you’ll get dozens of answers. Most of them, especially when it comes to tax, are not correct or even legal. So, why do people ask random people on online forums such important questions?

There are two reasons: 

#1: The advice is free, never mind that it’s garbage. At least you didn’t have to pay for it. 

#2: The people asking are looking for someone to give them the answer they want to hear.

When it comes to the first reason (people want free advice) my favorite saying is: Free advice is likely the most expensive advice you’ll ever get.

Free tax advice that’s wrong can cost you big-time. Same with free, but wrong, legal advice. Free medical advice can kill you.

Find a good expert, pay them for solid advice and then implement it.

How about the second one? We call that opinion shopping. You don’t like the answer you got, so you ask someone else. If you get a second qualified expert opinion, that’s valid and often recommended. But if you go shopping for opinions that support your desire by just randomly asking anyone with an opinion, without knowing what their qualifications are if any, you can get yourself in a bucketful of trouble.

Here are a couple of recent cases of bad tax advice that involved more taxes, penalties and even jail time. 

Lesson: Pay Your Employees a Wage, Not Rental Fees

In the 9th Circuit case of Bruce Lemay, he had established a company that sold abusive “tool plans” that set up contractors with programs that paid employees tool rental income instead of wages. That meant less payroll taxes for the employer and employees alike.

It also meant that the employees weren’t receiving wages like they should have been. Since it was clearly illegal, Bruce Lemay, as the promoter, got hit with sanctions and a $180,000 penalty.

No jail on this tax scam. Some promoters don’t get off so lucky. 

Popular C Corp Illegal Scam with Personal Expenses

In the 10th Circuit case of Patrick Combs, he got hammered for using his C Corporation to deduct payments of his personal expenses. He used the firm’s credit card to pay his personal expenses and then he took a deduction for all of the expenses. The deductions were disallowed and he received a hit for dividend income.

It would have been so much cheaper to just take a salary for the amount (which is deductible) or even just get a loan from the company.

This strategy ended up hitting him with double taxation and penalties. And yet this scam is still promoted as a legitimate way to get money ut of a C Corporation.

It’s not legitimate. It’s not legal. Make sure you get advice from experts who truly have the education and experience to give you good advice.
There are a lot of legal ways to pay less tax. You don’t need to use an illegal scam that results in more taxes, penalties and even jail time!

Corporations Sole: This Scam Leads to Jail Time

A corporation sole is a form of incorporation allowed by some states, primarily for use by religious leaders to hold title to property.  Several states, including Utah and Nevada, have disallowed the creation of new corporations sole because there is just too much abuse outside of its intended use.  

Gerrit Timmerman and Carol Jean Sing falsely told their clients that corporations sole were exempt from federal income tax, were not required to file tax returns and didn’t need to apply for nonprofit status.

Plus, they said that taxpayers could just assign all income over to the corporation sole and it would all be tax free. They could draw a tax free “salary” from their own corporate sole and there was no way the IRS could do anything about it. 

The IRS disagreed.

The IRS won. 

Gerrit Timmerman III, 73, of Midvale, UT was sentenced to 48 months in prison to be followed by three years of supervised release.  Carol Jean Sing, 75, of Henderson, NV was sentenced to 36 months in prison to be followed by three years of supervised release.  They were convicted of conspiracy to defraud the US government by the promotion of a tax fraud scheme.

I personally disagree with the statement “If it’s too good to be true, it probably is” when it comes to tax strategies. Given enough time and flexibility, you can create just about any tax situation you want.

But you MUST follow the tax laws and you MUST seek experienced tax professionals who have the right credentials. It won’t be cheap and you’ll have to change the way you do some things, most likely. But it is possible to create legal tax strategies.

That’s what we’re going to be focusing on during the new Coaching Course “Tax-Busting Strategies” featured during the second Wednesday of each month.

To join coaching, go to Wednesday Coaching

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