Now that the big accounting firms have been stung by IRS investigations, indictments, and convictions of the promoters of off the shelf tax shelters (like the POPS, PICOs, and FOCUS of Arnold and Porter), they have largely stopped offering speculative “investments” and offshore asset protection trusts. Now “a few smaller accounting and regional law firms, which are increasingly offering individual investors complex tax transactions, some custom-designed” are beginning to come under the scrutiny of the IRS.

In no particular order, here are the eight signs that your tax shelter could result in a criminal charges:

1. Tax savings that greatly outweigh the amount you initially put forth.
2. When an accountant or tax lawyer tells you that the financial transaction poses no risk.
3. When you are asked to sign a confidentiality agreement (so that you can’t get a second opinion).
4. A return that dramatically changes your tax liability when compared to previous years (which raises red flags at the IRS).
5. The profit of the transaction is insubstantial when compared to the tax savings.
6. It is a “deal done by very smart people that, absent tax considerations, would be very stupid.”
7. It sounds too good to be true.
8. You believe your tax shelter was built by God.

Of course, keeping money offshore in an asset protection trust is not against the law. But failing to declare those assets to the IRS is a violation of tax law, because the United States taxes on the basis of citizenship, not borders. Click here to read the New York Times article.

Filed under: Asset Protection Trusts, Estate Planning - Generally, Estate Planning of the Rich and Famous, Offshore Trusts, San Diego Estate Planning, Tax, Trusts