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Have you heard about pure trusts? There are some "experts" making the rounds, describing such trusts as a way that a taxpayer can avoid paying all income taxes.

Of course, no trust can absolve a taxpayer from income tax. It's a con.

Unfortunately, many cruel hoaxes and greedy con artists get folks from every social and economic level to buy into these abusive trusts.

Fortunately, our helpful friends at the IRS publish an annual list of the most common tax traps and scams. Here are a few from the 2011 version:

• Hiding income offshore
• Return preparer fraud
• False or misleading tax forms
• Frivolous tax arguments
• Abusive charitable deductions
• Abusive retirement plans
• Zero wages and zero returns
• Disguised corporate ownership
• Misuse of trusts

Here is a supplemental list of scams and tax dodges:

• Exaggerated home business deductions
• Constitutional or pure trusts
• Inflated claims of tax settlement companies

Promoters of these ideas often insist passionately that their strategies really work. They'll often disparage other financial professionals and imply that there's a conspiracy to keep you in the dark.

The IRS has had lots of experience fighting with taxpayers and promoters who thought the tax rules didn't apply to them. Unfortunately, many taxpayers who buy into a tax con end up paying at least twice—once to the promoter and again, inevitably, to the IRS. In some cases they end up paying a third time due to the civil penalties they incur for pursuing faulty strategies.

Here's a summary of some IRS penalties for pursuing faulty tax strategies:

1. attempting to evade or defeat tax under section 7201 for which the penalty is a fine of up to $100,000 and imprisonment for up to five years, or
2. making false statements on a return under section 7206 for which the penalty is a fine of up to $100,000 and imprisonment for up to three years, or
3. the 20 percent accuracy-related penalty under IRC Section 6662, or
4. the 75 percent civil fraud penalty under IRC Section 6663, or
5. the 20 percent erroneous claim for refund penalty under IRC Section 6676.

If someone approaches you with a tax strategy that seems too good to be true, please contact us. We want you to understand the details of the strategies and why they really don't work.

Please contact us at 504-212-3440 or estateplanning@lawealthplan.com to set up an appointment with Todd or Chip to discuss tax planning or other matters of financial concern.