Due to my time constraints, I thought I’d use the Wesley Snipes case to remind everyone about the age-old saying that “if it sounds too good to be true it probably is.” That certainly was the case with Mr. Snipes.

U.S. citizens don’t have to pay taxes?

Mr. Snipes, unfortunately, got hooked up with a couple of first-class tax fraud promoters by the last names of Kahn and Rosile. Their system relied on what’s known as the “861 argument”─a fringe interpretation of the federal tax code that holds that U.S. citizens don’t have to pay taxes on wages they earn within this country. It has been continually rejected as frivolous by judges and the IRS but is still used by some tax protesters.

It appears that Mr. Snipes’ tax advisors charged him a fee to become part of their tax-dodger group and took 20% of any tax returns generated due to their advice.

If Mr. Snipes would have done his homework, he would have found out that Rosile, a former certified public accountant, lost his licenses in Ohio and Florida and Kahn previously served a prison term for a tax-related crime in Texas.

Due to the advice of his new tax team, Mr. Snipes not only stopped filing his tax returns but also started filing false forms on taxes previously paid. In April 2000, Snipes sent in a fraudulent claim for $4 million he paid in 1996, prosecutors said.

The next April he allegedly filed for more refunds─$7.4 million from 1997 wages─while failing to file for the previous year.

The final outcome for Mr. Snipes

Mr. Snipes was convicted and will have to pay millions more in back taxes, penalties, and interest. The final bill could total $20 million. Additionally, he has been sentenced to 3 years in a federal jail.

The moral of the story? There are a few:

1. Do some research on the people with whom you work. With a little background search, Mr. Snipes would have found out the past indiscretions of his new advisors.
2. Never try to cheat the Federal Government. There are plenty of legal ways to reduce/mitigate taxes. Clients do not have to cheat in order to achieve a favorable income, capital gains, and estate tax plan.
3. If it sounds too good to be true, it probably is.

Let me focus on 3) for a minute before concluding this briefer than normal newsletter.

Since I’ve been dealing with “advanced” planning for 20 years now, I’ve seen a lot of scams. A few of my favorite ones that didn’t pass the smell test and advisors with any common sense should have stayed away from are:

1. Irish Leasing Companies (ILC) – Lease yourself as an employee to an ILC which can withhold any amount of income tax-free from your paycheck for as long as you want and let that money grow tax-free until you desire it in retirement. This was all the rage several years ago, and it stunk from the beginning. The outcome was that the IRS shut it down and put it on the listed transaction list.
2. 419A(f)5 union plans. This one never made any sense to me. Advisors would run around telling small companies that never typically unionized (like medical practices) to go ahead and unionize all the employees (except the owners) so the owners could then be carved out into their own deferred compensation plan. Because the employees were unionized, they were not eligible for the deferred compensation plan the owners were implementing. The IRS also put this on the listed tax transaction list.

By the way, you should know that there still is a version of the union carve-out plan being pitched in the 412(i) pension market (unionize the employee so they won’t be eligible for the company’s newly created 412(i) plan. Then only the eligible employees would be the owners who would sock away hundreds of thousands of dollars into the plan with NO employee contributions). I strongly recommend you stay away from this plan.

Today, however, most of the plans that I think are not on the up and up have more to do with the way they are sold and a lot less to do with the actual transactions themselves.

Equity Harvesting

Most people who read the books, Missed Fortune 101 or Stop Sitting on Your Assets, come away thinking there has to be more to the story. If building wealth were as easy as described in either book, everyone would be doing it; and the lawsuits that are flying in the insurance industry wouldn’t be flying like they are today. The fact of the matter is that there is nothing wrong with building wealth using Equity Harvesting. However, there is something very wrong with advisors selling the concept based on books with “fuzzy” math that distorts and ignores the tax code.

To read what’s wrong with both the above named books, go to http://www.www-missedfortune101.com/ and/or http://www.www-stopsittingonyourassets.com/.

Mortgage Acceleration Plans

Most people who run into the $3,500 mortgage acceleration plan that is spreading like wild fire through the financial services, insurance, mortgage, and realtor industries (using a modified MLM compensation model) also get the feeling that there is something missing from the sales pitch. In fact, there is NO need for clients to pay $3,500 to implement a mortgage acceleration plan; and there is NO such thing as “magic” software that helps clients pay off their mortgage early. An advisor can help a client implement H.E.A.P.™ and literally charge him/her nothing.

What’s my point?

My point with this newsletter is to remind readers not to get sucked into a marketing platform or sales scheme that will put your clients at risk as well as your reputation. No amount of money is worth it.

As I’ve found out by working with hundreds of advisors over the last many years, those who always try to do “right” by their clients seem to almost never lose them, receive many client referrals, and always seem to somehow do well financially. It’s sort of the good guy finally gets ahead story.

Sure, those who go with scammer concepts can make a real good living off of ignorant clients; but that is usually short lived and ultimately will drive the advisor from the business in the end.

Regards,

Bob J. Baker
Asset Strategies, LLC
www.assetstrategiesonline.com

Circular 230 Disclaimer
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this email (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

© 2008 Asset Strategies, LLC