Hiding money in a tax shelter can come back to bite you
NEW YORK (CNNMoney) -- When someone tries to sell you on a complicated scheme that promises to slash or eliminate your tax bill, think twice. It's likely to be a scam.
These scam promoters set up abusive tax shelters in which they will move your income-producing assets -- including any business you own -- into a trust, limited liability company (LLC), limited liability partnership (LLP), international business company (IBC), or foreign financial account the IRS warned.
The IRS said it also has been seeing frequent misuse of \"captive insurance\" arrangements.
Regardless of the structure, however, the basic idea behind an abusive shelter is this: Once you put your assets into one of these entities, a string of complicated transactions are conducted solely for the purpose of hiding your money from the IRS and making it look like you can claim fat deductions, escape self-employment taxes, and shift money out of your taxable estate.
While some who perpetrate these scams are the taxpayers themselves, it's also common for business owners, physicians and other high-net-worth filers to be snookered by someone who promises the moon and backs up the scheme with official-looking documents to make it seem legal.
Before signing on: Ask whoever is trying to sell you the product whether he's collecting a referral fee from anyone, and get a second opinion about the set up from a trusted, independent tax advisor.
If you fall for this scheme and get caught, it could mean large penalties, interest and even criminal prosecution.