MONDAY, APRIL 29, 2013 Do Not Be Tempted By Any Type of Mini-Captive Program
In some fraudulent schemes, a firm pays a mini-captive for “insurance,” while the captive secretly remits most of the money back to the parent owners, typically by placing it in an offshore account. The bogus mini-captive, in other words, simply serves as a front for funneling funds to offshore accounts while allowing the U.S. firm to claim a phony tax deduction for premiums paid along the way. In some versions of this scam, control of the funds is actually relinquished to another owner (typically an offshore entity) for a period of time with the agreement that it will later be returned – perhaps in five years. These often turn out to be true scams: In several documented cases, the offshore entity (or its promoter) has absconded with the clients’ funds and, when threatened with legal action, has threatened to expose the clients to the IRS as tax evaders. There are two lessons to be learned for any potential mini-captive owner: First, do not be tempted by any type of mini-captive program that is either manifestly illegal or that mysteriously promises significantly greater benefits than a legitimate mini-captive could deliver. Whether resulting from IRS scrutiny or predatory deception, significant risks and penalties are likely to occur.
As an expert witness Lance Wallach has never lost a case. Hopefully you will not need him
A new tax scam is going around which is roping in business owners and professionals around the country. This scam is marketed by a financial company out of the Bahamas, but has been roping in insurance brokers, banks, and sometimes even estate planners to sell the scam for them.
The scam promises that a business can make a payment to an insurance company located in the Caribbean. The payments are ostensibly for business insurance premiums, though there is little evidence that any real insurance is being provided. The business owner takes a deduction for the insurance premiums paid.
At the same time, the business owner sets up an offshore trust, and the offshore trust essentially purchases an interest in the insurance company. The insurance company then takes the premium and makes a "distribution" of profits to the offshore trust. Sometimes, the shares in the offshore captive are owned by an offshore life insurance policy and are taken within that policy tax-free.
At the end of the day, the business owner has taken a deduction for his "insurance payment" and yet regained control of his money in the offshore trust or offshore life insurance policy. Sounds too good to be true? It is.
Although the scam is made to sound like a sophisticated and legal tax strategy, there is so much of it that is just plain hokey. For instance, the promoters put a "Attorney-Client Privileged Communication" header across the front page of their agreement letter for clients, yet further back in the letter they specifically disclaim that they are a law firm or are giving legal advice and state that they are a financial firm instead. Good luck in getting that privilege to stand up in court.
But aren't clients entitled to rely on the promoter's letter an
A new tax scam is going around which is roping in business owners and professionals around the country. This scam is marketed by a financial company out of the Bahamas, but has been roping in insurance brokers, banks, and sometimes even estate planners to sell the scam for them.
The scam promises that a business can make a payment to an insurance company located in the Caribbean. The payments are ostensibly for business insurance premiums, though there is little evidence that any real insurance is being provided. The business owner takes a deduction for the insurance premiums paid.
At the same time, the business owner sets up an offshore trust, and the offshore trust essentially purchases an interest in the insurance company. The insurance company then takes the premium and makes a "distribution" of profits to the offshore trust. Sometimes, the shares in the offshore captive are owned by an offshore life insurance policy and are taken within that policy tax-free.
At the end of the day, the business owner has taken a deduction for his "insurance payment" and yet regained control of his money in the offshore trust or offshore life insurance policy. Sounds too good to be true? It is.
Although the scam is made to sound like a sophisticated and legal tax strategy, there is so much of it that is just plain hokey. For instance, the promoters put a "Attorney-Client Privileged Communication" header across the front page of their agreement letter for clients, yet further back in the letter they specifically disclaim that they are a law firm or are giving legal advice and state that they are a financial firm instead. Good luck in getting that privilege to stand up in court.
But aren't clients entitled to rely on the promoter's letter an
Captive Insurance & 419 Plans Litigation
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MONDAY, APRIL 29, 2013
Do Not Be Tempted By Any Type of Mini-Captive Program
In some fraudulent schemes, a firm pays a mini-captive for “insurance,” while the captive secretly remits most of the money back to the parent owners, typically by placing it in an offshore account. The bogus mini-captive, in other words, simply serves as a front for funneling funds to offshore accounts while allowing the U.S. firm to claim a phony tax deduction for premiums paid along the way.
In some versions of this scam, control of the funds is actually relinquished to another owner (typically an offshore entity) for a period of time with the agreement that it will later be returned – perhaps in five years. These often turn out to be true scams: In several documented cases, the offshore entity (or its promoter) has absconded with the clients’ funds and, when threatened with legal action, has threatened to expose the clients to the IRS as tax evaders.
There are two lessons to be learned for any potential mini-captive owner: First, do not be tempted by any type of mini-captive program that is either manifestly illegal or that mysteriously promises significantly greater benefits than a legitimate mini-captive could deliver. Whether resulting from IRS scrutiny or predatory deception, significant risks and penalties are likely to occur.
As an expert witness Lance Wallach has never lost a case. Hopefully you will not need him
Bogus Offshore Captive Insurance Arrangements
ReplyDeleteA new tax scam is going around which is roping in business owners and professionals around the country. This scam is marketed by a financial company out of the Bahamas, but has been roping in insurance brokers, banks, and sometimes even estate planners to sell the scam for them.
The scam promises that a business can make a payment to an insurance company located in the Caribbean. The payments are ostensibly for business insurance premiums, though there is little evidence that any real insurance is being provided. The business owner takes a deduction for the insurance premiums paid.
At the same time, the business owner sets up an offshore trust, and the offshore trust essentially purchases an interest in the insurance company. The insurance company then takes the premium and makes a "distribution" of profits to the offshore trust. Sometimes, the shares in the offshore captive are owned by an offshore life insurance policy and are taken within that policy tax-free.
At the end of the day, the business owner has taken a deduction for his "insurance payment" and yet regained control of his money in the offshore trust or offshore life insurance policy. Sounds too good to be true? It is.
Although the scam is made to sound like a sophisticated and legal tax strategy, there is so much of it that is just plain hokey. For instance, the promoters put a "Attorney-Client Privileged Communication" header across the front page of their agreement letter for clients, yet further back in the letter they specifically disclaim that they are a law firm or are giving legal advice and state that they are a financial firm instead. Good luck in getting that privilege to stand up in court.
But aren't clients entitled to rely on the promoter's letter an
Bogus Offshore Captive Insurance Arrangements
ReplyDeleteA new tax scam is going around which is roping in business owners and professionals around the country. This scam is marketed by a financial company out of the Bahamas, but has been roping in insurance brokers, banks, and sometimes even estate planners to sell the scam for them.
The scam promises that a business can make a payment to an insurance company located in the Caribbean. The payments are ostensibly for business insurance premiums, though there is little evidence that any real insurance is being provided. The business owner takes a deduction for the insurance premiums paid.
At the same time, the business owner sets up an offshore trust, and the offshore trust essentially purchases an interest in the insurance company. The insurance company then takes the premium and makes a "distribution" of profits to the offshore trust. Sometimes, the shares in the offshore captive are owned by an offshore life insurance policy and are taken within that policy tax-free.
At the end of the day, the business owner has taken a deduction for his "insurance payment" and yet regained control of his money in the offshore trust or offshore life insurance policy. Sounds too good to be true? It is.
Although the scam is made to sound like a sophisticated and legal tax strategy, there is so much of it that is just plain hokey. For instance, the promoters put a "Attorney-Client Privileged Communication" header across the front page of their agreement letter for clients, yet further back in the letter they specifically disclaim that they are a law firm or are giving legal advice and state that they are a financial firm instead. Good luck in getting that privilege to stand up in court.
But aren't clients entitled to rely on the promoter's letter an