IRS 2023 Dirty Dozen – Scam #10 (Part B)

IRS 2023 Dirty Dozen – Scam #10:   The Internal Revenue Service cautioned taxpayers to resist questionable tax practitioners and independent promoters selling schemes aimed at wealthy taxpayers. (Part B)

As part of the IRS annual Dirty Dozen, these potentially abusive arrangements involve things like Charitable Remainder Annuity Trusts and monetized installment sales. These tools can be misused by promoters, who can advertise these schemes to attract clients. The promoters misapply the rules and leave the filers vulnerable.”  “The IRS remains concerned about abusive tax arrangements, and they remain a focal point for our enforcement efforts,” said IRS Commissioner Danny Werfel. 

Schemes aimed at high-income filers – Monetized Installment Sales

In these potentially abusive transactions, promoters find taxpayers seeking to defer the recognition of gain upon the sale of appreciated property. They facilitate a purported monetized installment sale for the taxpayer in exchange for a fee. These installment sales occur when an intermediary purchases appreciated property from a seller in exchange for an installment note. The notes typically provide for payments of interest only, with principal being paid at the end of the term. In these arrangements, the seller gets the lion’s share of the proceeds, but improperly delays the recognition of gain on the appreciated property until the final payment on the installment note, often years later.

These are examples of potentially abusive arrangements that taxpayers should avoid, many of which are now advertised online. The IRS recommends that taxpayers considering these types of arrangements carefully review the legal requirements underlying them and consult with competent, independent, qualified advisors before engaging or claiming any purported tax benefit.

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Next week  #10:  Schemes Aimed at High-Income Filers (Part C)

(IRS Web Site)  (TTT 10/24/23 & 10/31/23)