Tax Abuses Information

Sham transactions and other allegations involving tax abuse can have serious consequences and require the assistance of experienced legal counsel. Attorney Theodore Craft has more than 40 years of experience helping people throughout Massachusetts with tax law issues, including IRS sham transactions. Mr. Craft's professional reputation lends credibility to your tax controversy case.

Contact Theodore L. Craft to learn more about sham transactions.

What Are Sham Transactions?

When a business transaction or plan does not have as its objective earning a profit, but is performed merely for tax motives, the business faces a potential tax issue. The IRS may regard the transaction as a sham or fraudulent transaction — a transaction without economic substance. Sham transactions may result in civil and criminal tax penalties.

An example of a sham transaction is an artificial loss on a business transaction created for tax purposes. Attorney Craft is an expert in analyzing business transactions to determine whether or not they are sham transactions.

Depending on the motive, the IRS may view sham transactions as a civil matter and simply adjust the amount of individual taxes due, or seek a criminal prosecution.

What Is Substance Over Form?

In applying income tax laws, the substance of the transaction, rather than its form, determines the tax consequences. What this means, essentially, is that the IRS, in reviewing a transaction, looks for the economic "drivers" of a transaction or deal to be transparent. Thus, although tax incentives can be the "mortar," which holds a transaction together, they cannot be the "bricks." If the IRS finds the economic substance of the transaction is not reflected in the form, that is, in the documents and factual circumstances in which the transaction or deal has taken place, it may adjust income taxes to reflect the substance. Depending on the motive, the taxpayer may also face criminal charges.

The substance over form analysis is used to dissect self-serving transactions between parties, such as transactions between corporations and their shareholders and partners. Here is an example of a substance-over-form transaction:

  1. A corporation sells assets in the corporation to a shareholder in return for a note payable by the shareholder to the corporation.
  2. The shareholder does not pay the corporation the note.
  3. The corporation declares the note uncollectible and writes it off as a receivable it will never receive.

This is an example of a criminal substance-over-form case. The substance of the case is that the shareholder took the assets from the company without any intention of paying the note.

Attorney Craft is an expert in analyzing "substance over form" transactions for clients in the Boston area. He also handles transactions pertaining to the Economic Substance Doctrine.

For More Information On Substance-Over-Form Doctrines And Other Tax Abuses, Contact A Massachusetts Attorney

Tax abuse allegations can carry serious potential penalties. Ensure that you remain protected. Contact a Boston area tax law lawyer online or call 888-TAX-RISK to schedule an initial consultation to discuss your situation.