The Internal Revenue Service concludes the “Dirty Dozen” list of tax scams with a warning to taxpayers to watch out for schemes peddled by tax promoters, including syndicated conservation easements, abusive micro-captive insurance arrangements and other abusive tax scams.

The IRS warns people to be on the lookout for promoters who peddle false hopes of large tax deductions from abusive arrangements. These “deals” are generally marketed by unscrupulous promoters who make false claims about their legitimacy and charge high fees to boot.

These promoters frequently devise new ways to cheat the system and market them aggressively. Some taxpayers play the audit lottery hoping they don’t get noticed.

To fight the evolving variety of these abusive arrangements, the IRS recently created the Office of Promoter Investigations (OPI) to focus on participants and the promoters of abusive tax avoidance transactions. OPI coordinates service-wide enforcement activities.

The best defense for a taxpayer approached by a promoter is to show caution: if it sounds too good to be true, it probably is.

These aggressively marketed abusive arrangements wrap up the IRS’s annual “Dirty Dozen” list and include the following:

Syndicated conservation easements
In syndicated conservation easements promoters take a provision of tax law for conservation easements and twist it through using inflated appraisals of undeveloped land and partnerships.

These abusive arrangements are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose. More information can be found at IRS increases enforcement action on Syndicated Conservation Easements.

Abusive micro-captive arrangements
In abusive “micro-captive” structures, promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of insurance.

For example, coverages may “insure” implausible risks, fail to match genuine business needs or duplicate the taxpayer’s commercial coverages. Yet the “premiums” paid under these arrangements are often excessive and used to skirt tax law.

Additional information can be found at IRS offers settlement for micro-captive insurance schemes; letters being mailed to groups under audit. Recently, the IRS has stepped up enforcement against a variation using potentially abusive offshore captive insurance companies domiciled in Puerto Rico and elsewhere.