Lie Down With Dogs . . .

And you'll end up with some mighty hefty fees.
Magazine Contributor
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This story appears in the July 2001 issue of Entrepreneurs Start-Ups magazine. Subscribe »

Think the idea of an offshore tax-shelter deal is intriguing? Think again. The IRS is cracking down on tax-evasion operations it considers illegal, putting promoters out of business and penalizing people lured in by their schemes.

The service is trying to do a better job collecting the hundreds of millions of dollars in revenue it loses each year due to such illegal operations. "The IRS is targeting small to midsized investors and business owners because it realizes that many individuals are trying to evade taxes [this way]," says Paul Gada, a tax analyst with CCH Business Owners Toolkit, a division of Riverwoods, Illinois-based tax and business law information provider CCH Inc.

6.31 million
hours is the time tax filers will save when the Schedule D capital gains tax form is cut from 54 lines to 40 lines next year.

A major focus of the most recent IRS raids on illegal tax schemes included the Institute of Global Prosperity, which operates over the Internet, and Anderson's Ark & Associates, with main offices in Hoodsport, Washington, and Santa Ana, Costa Rica. The IRS raids resulted in the arrest of four individuals from Anderson's Ark.

The IRS claims that tax-evasion scheme promoters use foreign banks and trusts to help individuals hide their incomes and create fake deductions. Under law, the federal government taxes all Americans worldwide on their incomes regardless of where they live or where they deposit funds.

If you feel tempted by the claims these promoters make, keep in mind that the penalties, interest and legal costs associated with an abusive tax shelter can be significant. To help you steer clear of illegal schemes, the IRS has prepared a list of red flags that should alert you to questionable promotions. For example, the service says be wary of deals that use foreign entities with no apparent business purpose other than reducing taxes. It's also a good idea to avoid promotions that promise "you'll never pay taxes again."

For more information on illegal tax-shelter schemes, including details of recent court cases, visit the IRS Web site at and click on "Tax Scams and Tax Fraud Alerts."

Great Falls, Virginia, writer Joan Szabo has reported on tax issues for more than 14 years.

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