The Internal Revenue Service (IRS) issues an annual list called the “Dirty Dozen,” which details the top 12 tax scams that taxpayers need to know about. The agency’s goal is to educate and prevent honest taxpayers from falling victim to any of these illegal activities. A Department of Justice press release explains one of the most popular tax scams from a decade ago and the outcome of a case where a man and a woman illegally advised clients on how to evade paying taxes.
According to the IRS, the “Corporation Sole” tax scam revolved around the tax filing status for legitimate churches, religious institutions and their leaders. However, in today’s Fraud of the Day the special filing status was illegally used to establish one-person, nonprofit religious corporations that were exempt from taxes.
The story states that a man from Utah and a woman from Nevada conspired to defraud the government by promoting the “Corporation Sole” tax fraud scheme to their clients. The pair advised their clients that by filing under the special status they were exempt from U.S. income tax laws and had no obligation to file tax returns. (Wouldn’t that be nice?)
For nearly three years, the pair advised clients that they could skip paying taxes on their income by assigning it to the “Corporation Sole,” draw a tax-free stipend from it and provide a tax-free shelter for any property by transferring it to the entity. The two kept the scam going by referring clients to one another and by paying referral fees to each other. (I suppose that one illegal deed deserves another.)
The 73-year-old Utah man and the 75-year-old Nevada woman were convicted by a jury trial. The man received a four-year prison sentence, while the woman was sentenced to three years. Both sentences will be followed by three years of supervised release.
This case is a good example as to why it is important to have a competent tax advisor. (If it sounds too good to be true, it probably is.) Fraudsters often forget to think about the consequences of their actions until they are caught. In this case the “Corporation Sole” tax scam backfired and they are now both solely responsible for their actions.
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