IRS and DOJ Cracks Down on "Tribal Tax Credit" Scam: What You Need to Know

According to an August 19th letter from Senate Finance Committee member Ron Wyden to SEC Chair Paul Akins, there is an ongoing Department of Justice and IRS criminal investigation regarding the sale of “alleged tax credits” that had been issued to Native American tribes. The letter says that the investigation began sometime last year. Wyden asked the SEC to investigate whether the promoter of the tribal tax credits had failed to comply with its reporting obligations by not filing some annual and quarterly reports in recent years.

The IRS has said the credits don’t exist, calling them a “potential scheme” and the Treasury Department had intended to publish a public statement to raise taxpayer awareness. Due to the ongoing investigation the IRS and Treasury were told not to publish any statements.

A September 8th article in the Wall Street Journal, A Tax Strategy Peddled to the Rich Comes Under Federal Scrutiny, discussed the case of Luke Gutwein, a plastic surgeon in Florida, who was told by his tax advisors that the credits were a “financial tool to help stimulate economic stability for Tribal Nations”. Gutwein purchased two tribal tax credits for $120,000 which the promoters said would reduce his taxes by $200,000 only to be told later that the credits could not be included on his tax return. Earlier this year, a couple, also in Florida, sued a promoter who sold them $2.7 million in tribal credits. According to the lawsuit, the IRS rejected the credits and assessed the couple penalties of $149,000 plus tax and interest.

Now that the proverbial cat is out of the bag, any tax advisor or taxpayer who was involved with the purchase or use of tribal credits may be contacted by criminal investigators with the IRS or Department of Justice and would be wise to retain tax counsel as soon as possible. Depending on the circumstances, timely amending tax returns may allow a taxpayer to avoid substantial penalties.

This saga is a stark reminder: if a tax opportunity seems too good to be true, make sure you run it by a competent and independent tax advisor.

For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact me at jcrouch@meadowscollier.com.