While investing in a pension fund or real estate can provide you with some respite from taxes, willfully entering in to such an arrangement to avoid taxes constitutes tax shelter fraud. There are many firms that offer tax shelters. Legal entities that offer such tax shelter facilities have a registration number that they have to give you when you invest in them. When you file your returns, you have to include this number in the appropriate column.
Types of Tax Shelter Fraud
There are two types of tax shelter fraud – offshore accounts and unusual accounting. When funds are transferred to offshore accounts to avoid paying taxes, the IRS considers it a case of tax shelter fraud. If you invest a disproportionately high percentage of your income in offshore funds to avoid paying taxes, the IRS can legitimately make you pay a penalty. The same is the case for unusual accounting such as paying a high interest on borrowed money to invest in shares and stocks. Here, while the interest is shown as an expense, the high returns from shares are shown as capital gains. As capital gains tax is lower, the investor ends up paying a lower amount of taxes.
Registration Number
In the event that the tax shelter operator fails to provide you with the registration number of the tax shelter you use, they need to pay a penalty of $100. If you fail to disclose the registration number in your returns, you need to pay a penalty of $250 for each instance of non-disclosure. Moreover, you need to fill in Form 8271 if you have availed of tax benefits by using a tax shelter.
Civil and Criminal Tax Charges
If you evade taxes by fraudulently using a tax shelter, then you are liable to pay both civil and criminal penalties. Moreover, if you have evaded state as well as Federal taxes, you will find that the penalty has been doubled.
Such tax penalties can range from between 15 percent and 75 percent of the amount due.
Obtain Legal Help
As a charge of tax fraud, especially by using fraudulent tax shelters is a serious one, you need to get a competent tax attorney as soon as the IRS starts investigating your case. A good lawyer will be able to advise you on the steps you need to take and the statements you need to make. A good lawyer will also be able to point out any extenuating circumstances such as a genuine error on your part. This will help reduce the penalty amount that you have to pay to the IRS.
