According to IR-2011-39 (4/7/11), the Internal Revenue Service (the “IRS”) has included abusive retirement plans in the 2011 Dirty Dozen Tax Scams. Here is what the IRS said:
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs, or into companies owned by their IRAs, to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.