Office of Promoter Investigations Cracking Down On “Tax Promoters“

As part of the Dirty Dozen list of the worst tax scams of 2021, the IRS has issued multiple warnings to business taxpayers about Tax Promoters. These individuals and entities promise to help businesses claim large deductions and credits that will dramatically reduce their tax. Many tax promoters charge substantial fees for their “services,” which often involve schemes that violate IRS regulations.

Some tax promoter scams deal with the Research and Experimentation Credit, commonly called the Research & Development or R&D Credit. Promoters often mislead business owners into believing that they can claim sizable R&D Credits with relatively little effort. In reality, to legally claim this credit, a business must demonstrate that a designated research activity satisfies a long list of IRS requirements. In addition, the progress of qualified research activities, and all associated expenses, must be thoroughly documented over a period of time.

Similarly, while conservation easements can provide legitimate tax deductions, tax promoters often peddle bogus “syndicated easements” based on phony partnerships. The IRS rejects many of these arrangements, and has recently stepped up enforcement of conservation easement rules. Tax promoters also push “micro-captive” insurance scams, pension plans that abuse international tax treaties, and shady methods to improperly defer capital gains on property sales.

The IRS recently created a new (OPI) Office of Promoter Investigations to crack down on these and similar scams. Importantly, the OPI is authorized to pursue action against not only promoters, but also any businesses that participate in the scams. In general, if a tax-reducing scheme sounds too good to be true, it usually is. To protect your enterprise, check with a business tax professional about the rules and regulations before claiming any of these deductions or credits.