IRS Dirty Dozen List-Let's Be Careful Out There

I speak at a number of events during the year regarding tax issues, primarily regarding IRS enforcement and mostly related to income tax or estate and gift tax issues. Many of my presentations reference the IRS Dirty Dozen list, which we annually blog about, along with other transactions highlighted by the IRS. I have joked that these days you can’t throw a rock without hitting someone marketing the next tax savings transaction on the internet, including videos on YouTube.

Among other things, this year’s IRS Dirty Dozen list includes:

1. Improper Art Donation Deductions;
2. Charitable Remainder Annuity Trust (CRAT);
3. Monetized Installment Sales; and
4. Questionable Employee Retention Claims.

To taxpayers, most of whom are not trained tax professionals, any transaction which could reduce their tax liability and/or put more money in their pocket probably sounds like a good opportunity. Several years ago there was a gentleman in the DFW area, we’ll call him Joe, who was marketing a transaction that he said was regularly used by the Rockefellers and others, which he was bringing to ordinary people. I met with Joe and listened to his description of the transaction. If you did not know better, it sounded pretty good because Joe had a very pretty slide presentation (which you could not keep because it was his proprietary property) that referenced the Internal Revenue Code and cases to support his transaction and argument. However, it was, as we say in the legal market, gobbledygook. Our friend Jack Townsend has a more direct name calling them BS transactions. Joe also had an answer for everything. For example, if a taxpayer insisted on talking with their CPA, Joe would tell them that the CPA would say the transaction did not work because the CPA was old school and did not understand. Not surprisingly, this is exactly what would happen. Unfortunately, many taxpayers were amazed by Joe’s ability to know what their CPA would say and bought in to the transaction. Ultimately, the house of cards fell with Joe going to jail and his clients owing the IRS taxes, interest and significant penalties. PT Barnum said “a sucker is born every minute”. He may have also said “if it is too good to be true, it probably is” or “pigs get fat and hogs get slaughtered”.

As Sgt. Phillip Esterhaus would say at the beginning of every episode of Hill Street Blues, “Let’s be careful out there”.

If you have any questions regarding this or any other tax issue, please feel free to contact me a 214-749-2456.