In a recent article below, an example of tax avoidance and the use of an abusive tax shelter: Also, below, is another article "Create Church to Avoid Paying Taxes?" Before "donating" to the "Church" ... Investigate Your Charity Before You Donate ... Investigate Your Charity Before You Donate ...
Wednesday, July 14, 2010
Feds: Charge Orem (Utah) man using church to avoid taxes -
_He didn't read the book, "Economic Empowerment Through the Church: A Blueprint for Progressive Community Development"
It's one thing to give offerings, tithes and donations to your church and write them off on your taxes as a charitable donation. But when ministers of the Orem-based Church of Compassionate Service gave everything they had to their church in order to receive tax-exempt status from the IRS, it got the government's attention.
Now the U.S. Justice Department has filed a case against the church and its leader, Kevin Hartshorn, for promoting what it calls a false church-based tax-fraud scheme.
The Justice Department says the Utah man is soliciting people to become "ministers" and sign over their assets to his church, taking a vow of poverty to avoid paying income taxes.
Federal lawyers are seeking a court injunction against Hartshorn's Orem-based operation. A civil complaint they filed Monday in federal court in Salt Lake City also demands his records.
Hartshorn told The Associated Press on Tuesday that he's unaware of the government's complaint. He says he's just running a religious order called the Church of Compassionate Service in compliance with tax laws.
The government alleges Hartshorn takes the title to his ministers' homes and deposits their earnings in a church account to avoid taxes, then issues debit cards for the ministers to spend the money.
Locally, leaders in the religious community sense there is something at least deceitful going on with Hartshorn's church. Provo Bishop Kevin J. Crowell, OC, DD of the Emmanuel Catholic Mission, Order of Compassionate Monks, is not concerned that his church will be affected as it is a recognized religion, but he does feel Hartshorn is taking it to the limit.
"He does appear to know the rules of the game and is playing them to his advantage," Crowell said. "It sounds cultish in the greatest sense of the word."
The Reverend Jessica A. Hatch, interim minister at St. Mary's Episcopal, understands the necessity to be compliant with IRS regulations.
"Tax laws are quite clear what constitutes a legitimate contribution," Hatch said. "This is illegal with any kind of a non-profit. There are very clear procedures. This sounds very intentional."
Hatch believes there is a scam born every minute and particularly in this area because members of all faiths tend to be trusting when their church is involved. "I don't even want people to hand out business cards here [at St. Mary's]," Hatch said.
"It sounds to me like these people are masquerading around religion," said Minister Charu Das, of the Krishna Temple in Spanish Fork. "If you're selling gold and it's the real thing, you would want counterfeiters to be shut down."
In part, the Justice Department is asking the court find that Hartshorn has engaged in conduct that substantially interferes with the enforcement of the internal revenue laws and that injunctive relief is appropriate to prevent a recurrence of that conduct; and to enter a permanent injunction prohibiting Hartshorn from conducting business through the Church of Compassionate Service or through any other name or entity.
Hartshorn went to trial on securities fraud in 2007 and was found not guilty.
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May 18, 2006
Create Church to Avoid Paying Taxes?
An interesting story on tax fraud comes to us from Nevada courtesy of the Reno-Gazette Journal:
An Incline Village man was indicted Wednesday on felony charges that he created a church, with himself as its minister, to hide his income and avoid paying taxes, the U.S. attorney's office said.
A federal grand jury indicted Paul S. Jensen on three counts of making false claims and three counts of tax evasion, said Natalie Collins, spokeswoman for the office.
According to the indictment, Jensen filed for tax refunds with the IRS in 2001 and 2002 for $117,956, claiming he and his wife had no income during that period. Collins said they actually had an income of $534,206.
He also was charged with failing to pay the tax he owed for 2000 through 2002, she said.
The line with churches, charities, and taxes often becomes tricky given the complicated nature of the income tax code. And the more complicated the code becomes and the higher the tax rates you have, the more attempts at fraud will appear, thereby requiring an ever-increasing IRS enforcement staff.
For more on the complexity of the tax code, visit our section on the topic.
http://www.taxfoundation.org/blog/show/1506.html
http://heraldextra.com/news/local/central/orem/article_7279aab1-b2d7-5f5e-b748-f8b67ee9fd50.html
Tax Shelters
What Does Tax Shelter Mean?
A legal method of minimizing or decreasing an investor's taxable income and, therefore, his or her tax liability. Tax shelters can range from investments or investment accounts that provide favorable tax treatment, to activities or transactions that lower taxable income. The most common type of tax shelter is an employer-sponsored 401(k) plan. Investopedia explains Tax Shelter
Tax authorities watch tax shelters carefully. If an investment is made for the sole purpose of avoiding or evading taxes, you could be forced to pay additional taxes and penalties. Tax minimization (also referred to as tax avoidance) is a perfectly legal way to minimize taxable income and lower taxes payable. Do not confuse this with tax evasion, the illegal avoidance of taxes through misrepresentation or similar means.
Abusive Tax Shelter
What Does Abusive Tax Shelter Mean?
An investment scheme that claims to reduce income tax without changing the value of the user's income or assets. Abusive tax shelters serve no economic purpose other than lowering the federal or state tax owed when filing. Often, these schemes channel funds through trusts or partnerships to avoid taxation.
Investopedia explains Abusive Tax Shelter
People who invest in abusive tax shelters can be penalized by the Internal Revenue Service (IRS). Typically, when the IRS determines someone has used such a scheme, the person will owe back taxes with accrued interest.
To help taxpayers recognize potential schemes, the IRS has compiled a list of transactions that are abusive tax shelters. If a tax shelter resembles a listed transaction, it is considered abusive and the users may face penalties.
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Tax Haven
What Does Tax Haven Mean?
A country that offers individuals and businesses little or no tax liability.
Investopedia explains Tax Haven
There are several countries in the Caribbean that are considered tax havens.
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Tax Avoidance
What Does Tax Avoidance Mean?
The use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.
Investopedia explains Tax Avoidance
Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today.
Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.
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