IRA Concealment

Roth IRAs (Individual Retirement Accounts) and the tax advantages they allow are a popular tool to save money and prepare for  retirement.  Funds withdrawn during retirement are not subject to taxation.   Likewise, a taxpayer does not pay income taxes on money the IRA receives until he withdraws it, and only then if it is withdrawn before retirement or in excess of the statutory amounts.   IRA’s were created by federal law in order to assist Americans prepare for retirement.  But they can be abused to improperly evade the income tax.

Contributions to a Roth IRA are capped annually.  Contributions within the cap are tax exempt while contributions in excess of these capped amounts are subject to taxation.  Some individuals may attempt to exceed these amounts to improperly take advantage of the Roth IRA’s tax advantages.  To do this, a taxpayer may attempt to create sham business entities for the sole purpose of contributing money to the IRA.  The taxpayer will then send their contributions through these sham entities to evade the tax.

Another more sophisticated tax evasion scheme involves a business owned by the taxpayer who then opens an IRA for his retirement.  The IRA then acquires an ownership interest in a corporation.  Then the taxpayer attempts to hide income through transactions between the corporation owned by the IRA and his own business.  The taxpayer attempts to then evade income taxes through a series of sham transactions with the corporation owned by the IRA and his own business.  The IRA Corporation then purchases or otherwise obtains some property from the taxpayer’s business for less than its fair market value.  This allows the taxpayer to exceed the limits on contributions allowed to his Roth IRA.

Both of these schemes involve funneling assets and funds to the IRA in order to evade income tax.  The first avoids the caps on contributions and taxes used to enforce them while the second attempts to increase the value of the IRA and reduce taxable income through improper means.  It’s important to remember that most Roth IRA’s are common and the vast majority of them are legal.  However, if a taxpayer attempts to use his Roth IRA as a means of evading income taxes on taxable income rather than as a means to plan for retirement, he could attract the attention of the IRS and find himself prosecuted for tax fraud.

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