Posts Tagged ‘tax planning’

I.R.S. view on tax trusts

Friday, June 4th, 2010

Abusive Trust Tax Evasion Schemes

Talking Points 

  • Trust/estate matters are the third highest area of growth among top CPA firms.


  • Domestic trusts filed 3.6 million Form 1041 returns in 2003; the third most frequently filed income tax return behind individual and corporate returns.


  • Since the mid-1970s the number of Form 1041 returns filed has doubled and there has been a proliferation of abusive trust schemes marketed to avoid or evade income taxes.
  • Facts about trusts :

o A trust is a legal entity formed under state law. To create a trust, legal title to property is conveyed to a trustee, who is then charged with the responsibility of using that property for the benefit of another person, called the beneficiary, who really has all the benefits of ownership, except for bare legal title.
o Legal trusts are used in such matters as estate planning; to facilitate the genuine charitable transfer of assets; and, to hold assets for minors and those unable to handle their financial affairs.
o A trustee is designated to hold legal title to the trust property, to exercise independent control over it, and to be responsible for its management.
o All trusts must comply with the tax laws as set forth by the Congress in the Internal Revenue Code, Sections 641-683.
o Trusts established to hide the true ownership of assets and income or to disguise the substance of financial transactions are considered fraudulent trusts.
o Taxpayers are responsible for payment of their taxes as set forth by Congress regardless of who prepares their return.