Many entrepreneurs may not be getting sound tax advice from their financial advisors. Beware of these abusive tax shelters--no matter how a financial advisor may spin them, they're still illegal.
1. Setting up a new entity and transferring assets into it to avoiding paying income taxes: This is tax evasion. Surprisingly, business owners still buy into this advice from shady financial advisors. The most recent scheme the IRS successfully prosecuted netted almost $4 billion in settlements and involved about 750 corporate executives. The scam was sold mostly to corporate executives, who transferred their stock options to a family-controlled partnership, thereby avoiding income tax liability.
2. Buying an investment that promises to generate a loss solely to offset ordinary income: For example, you cannot invest money in exploring and drilling for oil--with no intention of finding any-then write off more than you spent.
Content Continues Below
3. Using Foreign Leveraged Investment Programs and Offshore Portfolio Investment Strategies to generate substantial phony capital losses: Recently, a major corporation was fined $456 million for marketing, designing and obtaining legal opinions recommending that their wealthy clients invest in these stock swaps and warrants.
Michael Rozbruch is founder and CEO of Tax Resolution Services Co.
Originally published in the February 2006 issue of Entrepreneur Magazine