The IRS on Wednesday began its annual “Dirty Dozen” series, warning of abusive tax transactions and scams, with four schemes the Service advised taxpayers to shun.
The four arrangements the IRS described as potentially abusive “are very much on our enforcement radar screen,” a news release quoted IRS Commissioner Charles Rettig as saying. The release also reminded taxpayers that they remain legally responsible if they adopt a promoter’s too-good-to-be-true arrangement and its promised but illusory tax savings. As for those promoters, the IRS warned that its Office of Promoter Investigations will detect and examine their activities.
Taxpayers who have engaged in the transactions should consider taking corrective steps, such as consulting a competent tax professional and filing an amended return, the IRS advised.
Wednesday’s installment of the Dirty Dozen discussed misusing a charitable remainder annuity trust (CRAT); engaging in specious transactions with an individual retirement arrangement (IRA) in Malta or another foreign country; maintaining certain captive insurance arrangements through a Puerto Rican or other foreign corporation; and camouflaging, or “monetizing,” an installment sale as a series of loans.
Abusive CRATs
The IRS described a CRAT to which a taxpayer transfers appreciated property for which the taxpayer improperly claims a step-up in basis to its fair market value on the date of the transfer. The CRAT does not recognize gain when it sells the…
