The IRS Dirty Dozen Tax Scams: Misuse of Trusts

Each year, the Internal Revenue Service releases a list of the 12 most popular tax scams for the year. The 2008 list is out, and I thought it would be fun to go through them individually to show you how criminals are trying to take advantage of taxpayers. The basic idea behind all of these scams is simple: prey on a taxpayer's fear of the IRS or their desire to avoid paying taxes.

Use the information here to help avoid being taken advantage of by a scammer who wants your money. And use this basic rule of thumb for any offer or communication regarding taxes: If it sounds too good to be true, it probably is. Don't get fooled by claims regarding mysterious refunds or tax bills. When in doubt contact the IRS directly for help with your situation.

Trusts can be legitimate vehicles for tax planning and protecting assets. And when someone reputable is helping you craft them, trusts can be beneficial and completely legal.

But tax scammers promote the use of trusts to (illegally) avoid paying income taxes. If someone is telling you that you can avoid taxes all together simply by putting assets into a trust, ask yourself if that sounds reasonable? If it was really legal and really worked the way they're promising, wouldn't we all be doing it to avoid taxes?