An Offshore Charitable Tax Scam By Vernon K. Jacobs, CPA  & J. Richard Duke, J.D., LLM

Here's an example of some of the wishful thinking that is passed on to unsuspecting folks who are eager to find ways to move money offshore and save taxes at the same time. Frankly, this one didn't even pass the "If it sounds to good to be true test". This question was posed by a friend and our reply follows the explanation of the scam. One of our clients stopped in at our office last week.. He spent over an hour talking to us about Ireland and his charity. Don (not his real name) is a minister who has set up a charitable corporation called YYY. It is registered in the U.S. as an official, government recognized charity. Now here is the value (or the catch)- you can make a tax deductible contribution to YYY, claim the donation on your taxes and then withdraw the money you "donated", minus 10% that Don takes off the top. When you give your money to YYY, they transfer your money to the Royal Bank of Scotland in a sub-account of the corporation. You can withdraw and spend your money without reporting it to the government. Don swears this is perfectly legal and that his corporation has been thoroughly checked out by all of the foreign banks with which he has accounts, because to the U.S. government, his corporation is a domestic charity. All of the people who make a "donation" become Directors in the corporation and there are no shareholders. He says that this is only a tax advantage to U.S. citizen since his corporation is registered in the U.S..    Does this sound legal to you? I am very skeptical. While it may be legal, it sure sounds like a scam. Their main mode of marketing is word of mouth--rather suspicious!? (A Friend) The program described here seems like a somewhat clever form of tax evasion. The fact that the program has been "checked out" by various foreign banks isn't likely to mean that they have hired a U.S. tax specialist to evaluate the "program". First, you only get a tax deduction for a contribution to a U.S. charity for which you derive no benefit. If you get any money (or other benefits) in return, this violates the "private inurement" rule, which may reduce or disallow the amount of the tax deduction. If the donation were to a foreign charity or church, it would not be deductible at all. Since it is apparently to a U.S. based church, it is deductible so long as the U.S. based church is a bone fide church and isn't rebating the contribution back to the donor. The fact that the church transfers the money to an offshore bank and then gives the donor the power to recover up to 90% of the "donation" is simply a way to obscure what is really happening and to offer the "donors" the hope of a way to get a tax deduction for funds that are transferred offshore. On a more technical level, the fact that the "donors" are "directors" of the corporation puts them in the unfortunate position of being exposed to some severe penalties for self-dealing with a charity. The fact that there are no "shareholders'" in the corporation is not significant since that's typical of a not-for-profit corporation. We are in favor of using any legal method to avoid taxes even if it's one the IRS might be prone to dispute. They have a habit of taking a hard line on a lot of tax strategies that are subsequently held to be legal by the courts. However, we would not sign any tax return where such a charitable deduction was claimed by the taxpayer. Vernon Jacobs & Richard Duke Reprinted in part from The Offshore Tax Seminar Manual Copyright, 2002, All rights reserved. Co-authors of The Offshore Tax Seminar Manual http://www.offshorepress.com/offshoretaxmanual.htm

About the authors: Vernon Jacobs is a CPA who provides tax accounting and consulting services for clients with international interests. He edits and publishes the online International Wealth Protection Reports ..  J. Richard Duke , JD, LLM is an attorney who specializes in international tax law and is an Adjunct J. Richard Duke is a Professor of international tax law. and a practicing attorney in the international specialty.  He is a Consulting Editor for the online International Wealth Protection Reports Sponsored by Offshore Press, Inc .., Copyright, 2002, all rights reserved. Offshore Press, Inc., Box 8194, Prairie Village, KS 66208. Phone (913) 362-9667. Email to Offshore Press   Vernon K. Jacobs, Webauthor . .