When you hear “tax shelters,” you probably think of complicated strategies used by the uber-rich to hide their money from Uncle Sam.
Some are legit, but others are scams.
“These scams can range from simple schemes to inflate refunds to more elaborate efforts related to tax shelters,” the IRS said. “These sophisticated schemes, particularly those involving micro-captive insurance shelters, can be peddled by promoters and others to avoid taxes.”
The scams are a perversion of tax law, which allows businesses to create so-called “captive” insurance companies to protect against certain risks, and the insured business can claim deductions for premiums paid.
But questionable versions of the shelters lack many of the attributes of genuine insurance, the IRS said.
The goal? Tax avoidance or tax evasion.
We won’t get into the nitty-gritty here, but you can read more from the IRS.
It’s probably enough to say that if anyone approaches you about a captive insurance shelter, think carefully before biting.