The U.S. District Court for the Western District of Missouri has permanently barred tax professional Aric Elliot Schreiner and his company, Columbia CPA Group LLC, from promoting or participating in tax schemes involving charitable remainder annuity trusts (CRATs). This decision came after the government sued Schreiner and five other defendants to stop them from promoting the CRAT scheme. The court also ordered Schreiner to repay $400,000 in “ill-gotten gains” related to the scheme. Injunctions had been previously granted against other defendants involved in promoting CRAT schemes.
The government alleged that the defendants were involved in at least 70 CRATs, resulting in an estimated $40 million of unreported taxable income and at least $8 million in lost tax revenue. The scheme involved encouraging taxpayers to contribute property, usually real property that had gained value, to a CRAT. The basis of the property was unlawfully inflated on tax documents, and the proceeds from the property’s sale were used to purchase an annuity, with payments either not reported or reported as tax-free distributions from the CRAT.
Abusive arrangements using CRATs have caught the attention of the IRS, with CRAT abuse listed as one of their “Dirty Dozen” schemes. The Dirty Dozen is an annual list of scams and schemes that puts taxpayers and tax professionals at risk of losing money and personal information. While not a formal listing of IRS enforcement priorities, the Dirty Dozen aims to raise awareness of common tax scams. Charitable remainder trusts, including CRATs, can be legitimate tax planning tools when set up and administered properly.
In a charitable remainder trust, assets are donated to the trust, and in exchange, the donor receives a tax deduction based on a formula. The trust benefits both the beneficiaries and a chosen charity. The terms of the trust govern how much and when beneficiaries receive payouts, usually ranging from 5% to 50% of the trust’s value each year. After the trust’s term or the beneficiaries’ deaths, the remainder of the trust is distributed to the designated charity. CRATs pay a fixed annuity amount yearly, while charitable remainder unitrusts pay a fixed percentage based on the trust’s value.
The Department of Justice Tax Division has obtained injunctions against numerous tax return preparers and promoters involved in fraudulent tax schemes, including CRAT abuse. The Tax Division has a list of enjoined individuals and businesses on their website, along with press releases detailing the cases. If anyone believes an enjoined person or business is violating their injunction, the Tax Division encourages them to report the violation promptly. Overall, it is essential for taxpayers and tax professionals to stay vigilant against tax schemes and scams to protect their financial well-being.
