IRS  Trust  Brochure.layout  4985    1/11/00    11:28  AM    Page  1

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The bottom line is Don’t Buy In!                                           www.findlaw.com) really say about fraudulent trusts. (Internet site - United States v. Noske for what the Federal courts                                               See criminal cases United States v. Scott and                         ruin of many taxpayers. ments has led to the incarceration and/or financial Knowingly participating in fraudulent trust arrange-                                                  interest, and fines for following bad advice. end, unfortunately, you pay even more in penalties, to subscribe to fraudulent trust schemes and in the is seldom free. Upfront you pay fees or commissions Following false, misleading, or unorthodox tax advice                                          engaging in criminal activity.                                          specifically for the purpose of evading taxes, are encourage taxpayers to structure transactions, plify our tax laws. But those who participate in or efforts to seek reform of our tax system and to sim- groups and/or individuals who have made legitimate vent the tax system. And there have always been who, for a variety of reasons, have tried to circum- There have always been groups and/or individuals                                                                                                                                                                                           sovereign trust                                                                                                                                                                                                                                                                                                            promised tax benefits.                                                                                     residence and furnishings.                                                                                                                                                                                                                                 employment tax.                                                                   reveal an unscrupulous trust promotion: for the following common warning signs that may                             Recognizing a problem trust.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Use of terms such as           Use of post office boxes for trust addresses.                                                 Lack of an independent trustee. Unjustified replacement of trustee. Use of back-dated documents.                                                                            High fees for trust packages, to be offset by                                                                                                                Depreciation deductions on an owner’s personal                                              Deductions for personal expenses paid by the trust.                                                                    A promise to reduce or eliminate income and self-
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    – Oliver W endell Holmes                                        are what we pay for a civilized society

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         unincorporated business organization

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  pure trust constitutional trust

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    T axpayers should look
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         .                                        ,

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                                                                                                                                                                                                                                                                                                                                                                                                                                                         For more information go to: www.treas.gov/irs/ci                                                                                                                                                                                                                                                                                                                                                                                  those who violate the tax laws demonstrates        the tax laws. Recommending prosecution of                                                          arrangements seriously. It is a matter of main-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   taxpayers to avoid fraudulent trust schemes                                                             I                                                                                                              For more details about the IRS policy regard-                                                strategy to address fraudulent trust schemes.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             taining public confidence in the fairness of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Announcement Notice 97-24 which warns
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          taxpayers pay their fair share of taxes.                                     the IRS’ commitment to ensuring all                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               If it sounds too good to be true; it is!                                                                                                                                                                                                                                                                                                                                                        ing fraudulent trusts, read IRS Public
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               that advertise bogus tax benefits.                                                                                                                                                                                                                                                                                                                                                                                                                       undertaken a national coordinated 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      The IRS takes fraudulent trust                                                                                                                                                                                                                                                                                                                                                                                                                                             on the Internet at www.irs.gov)                                (IRS Notice 97-24 can be found 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Call 1-800-829-0433.                                                                                                                          T ax Fraud to your local 
                                 Catalog Number 24843F         Publication                  www.irs.gov                                                                                             Internal Revenue Service Department of the Treasury                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Report Suspected                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    IRS has recently 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           IRS office.
                                                               2193
                                                               (Rev .
                                                        7-2 002
                                                               )

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Trusts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 4                                                                                                                                                                                                                                                                                                                                                             3                                                                                                                                                                                                                                                                                                                                                                                                                                                                        2                                                                                                                                                                                                                                                                                                                                                                           1
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 sidered Fraudulent Trusts                           substance of financial transactions are con-     ship of assets and income or to disguise the                                                                                                       Trusts established to hide the true owner-                                                                 of who prepares their return.                                                 their taxes as set forth by Congress regardless                                                                          Taxpayers are responsible for                                                                                                                                                                                                           prison for each offense.                                                                              up to $250,000 and/or up to five years in                                                                                                                                                                                                                  taxes owed. attributable to the fraud in addition to the                                                   ty up to 75% of the underpayment of tax                                                                                                                                                                                                       prosecution.                                                                                                           may result in civil penalties and/or criminal                                                                                Violations                                                                                                                    Revenue Code, Sections 641-683.                                                                    as set forth by the Congress in the Internal                                                                     All trusts must comply                                                                                                                        financial affairs.                                minors and those unable to handle their                                                                                                                 ble transfer of assets; and to hold assets for  planning; to facilitate the genuine charita-                                                                                  Trusts are used                                                                                                                                 of assets from all the benefits of ownership.                                                   pletely separates responsibility and control                                                         A trust is a form of ownership
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Criminal convictions may result in fines                                                                                                                                                                                                                                                                        Civil sanctions can include a fraud penal-

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                                                                                                                                                                                                                     about                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      in such matters as estate

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 with the tax laws 

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          F

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       fraudulent trust arrangements 
                                                                                                          shielded from potential civil and criminal sanctions.  a fraudulent trust scheme, the taxpayer will not be actions. Should a taxpayer choose to participate in     Taxpayers must take responsibility for their own                                                                                                                ible by virtue of assigning the residence to a trust.                                                         furnishings used solely for personal use is not deduct- Truth:                                                  deductions on their tax return.                   sonal residence and furnishings and take them as    False Claim:                                                                                         by virtue of assigning assets and income to a trust.                                                cannot be transformed into deductible expenses                                                      Truth:                                                                              expenses paid by the trust on their tax return.                                                 False Claim:                                                                                                                                              control over the trust, and to manage the trust.                                                    title to the trust assets, to exercise independent                                                    An independent trustee is designated to hold legal                                                     give up significant control over income and assets.                                                      Truth:                                                                                        a trust.                                                  your income and assets with the establishment of False Claim:                                                                                                                                  or the transferor.                                                                                           taxes may fall to either the trust, the beneficiary                                                                                                     property held in trust. The responsibility to pay                                         held in trust, including the income generated by                                             Truth:                eliminate income taxes or self-employment taxes.                                                   False Claim:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Depreciation of a taxpayer’s residence and                                                                                                                                                                                                                                                                                                                                                                                                                                 Non-deductible personal living expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Under legal trust arrangements, you must                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Taxes must be paid on the income or assets
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Taxpayers can depreciate their per-                                                                                                                                                                                                                                                                                                                                                                                                                                                              Taxpayers may deduct personal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                You will retain complete control over                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Establishing a trust will reduce or                                                                                                                                                                                                               can include:                                                                                                                                                                                                                                                                                                              claims concerning 

       from these arrangements is fully taxable. that this distribution is  tax-free. In fact, the income to the original owner. The trust promoter claims       funds are ultimately distributed or made available  flow through several trusts or entities until the       foreign trust arrangements enable taxable funds to and also provide financial secrecy. Typically, abusive eign countries that impose little or no tax on trusts                                                                                             5. Foreign Trust:                                                         letter. Therefore, contributions are not deductible.    often are not qualified and have no IRS exemption tax returns. These alleged charitable organizations claims the payments as charitable deductions on its of the taxpayer or family member. The trust then                                                  educational, and recreational expenses on behalf                                                  zation. The trust or organization pays for personal, income to a trust claiming to be a charitable organi- 4. Charitable Trust:                                                                                                                                        deductible and the IRS will disallow them.                               pool service and utilities. These expenses are not                                                  maintaining and operating the residence including,                                                    The trust deducts depreciation and the expenses of                                                    sometimes rents the residence back to the taxpayer.                                                     residences, including furnishings, to a trust, which                                                                    3. Family Residence Trust:             trust. It provides no tax relief.                                                              arrangement has the same pitfalls as the business                                           for payments to the equipment trust. This type of                                                 trust reduces its income by claiming deductions                                                                  business trust, often at inflated rates. The business                                               to hold equipment that is rented or leased to the                                                             2. Equipment or Service Trust:                                                  no tax relief.                                                  ness’ stream of income. Such arrangements provide                                              runs day-to-day activities and controls the busi-                                          entities controlled by the taxpayer, he or she still ness. In reality, however, through trustees or other              taxpayer has given up control of his or her busi- a constitutional trust, it makes it appear that the                                                   corporated business organization, a pure trust or                                                 on going business to a trust. Also called an unin-                                                   1. Business Trust:                           promote fraudulent trust schemes:                                              The following arrangements have been used to                                               arrangements does not make it a legitimate trust.                                              the name “trust” is associated with financial                                                  Don’t be misled by the word “trust.” Just because

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   These trusts often are located in for-
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    T axpayers transfer assets or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               This involves the transfer of an

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               T axpayers transfer family
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