The Criminal Division of the IRS has identified the five trusts it is targeting:

 The Criminal Division of the IRS has identified the five trusts it is targeting:

    Business Trust

    The owner of a business transfer the business to a trust (sometimes described as an unincorporated business trust) in exchange for units or certificates of beneficial interest, sometimes described as units of beneficial interest or UBIs (trust units). The business trust will make payments to the trust unit holders or to other trusts the owner has created(usually characterized as deductible business expenses or deductible distributions) that are purporting to reduce taxable income of the business trust to such an extent the where little or no tax is due from the business trust.

    Equipment or Service Trust

    The equipment trust is formed to hold equipment that is rented or leased to the business trust at inflated rates. The service trust is formed to provide services to the business trust, again often for inflated fees. Under these arrangements, the business trust claims to reduce its income by making allegedly deductible payments to the equipment or service trust. The equipment or service trust also attempts to reduce or eliminate its income by distributions to other trusts.

    Family Residence Trust

    The owner of the family residence transfers the residence to a trust. The trust claims the exchange resulted in a stepped-up basis for the property, while the owner reports no gain. The trust claims to be in the rental business and alleges to rent the residence back to the owner. In most cases, however, little or no rent is paid.

    Charitable Trust

    The owner transfers assets to a purported charitable trust and claims that either the payments to the trust are deductible or payments made by the trust are deductible charitable contributions. Payments are claimed to be made to charitable organizations, but, in fact, the payments are for the personal, educational, living or recreational expenses of the owner or his family. For example, the trust may pay for the college tuition of a child of the owner.

    Final Trust

    *In some multi-trust arrangements, the U.S. owner of one or more fraudulent trusts establishes an additional trust known as the final trust that acts as the trust for the others and receives all income from the other trusts.


    A final trust often is formed in an offshore that imposes little or no taxes on the trust. In some arrangements, more than one foreign trust is used, with the cash flowing from one trust to another until the money ultimately is distributed or made available to the U.S. owner, purportedly tax-free. This has been judged by the IRS as being nothing more than a money-laundering scheme.

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