As a small business owner, safeguarding your business assets, real estate, and investments is critical. Trusts can be effective estate planning tools, offering tax efficiency, business continuity, and wealth protection. However, scammers exploit the complexity of trust law to sell fraudulent schemes that promise unrealistic tax benefits.

The IRS has flagged several abusive trust scams, including § 643(b) trust arrangements and pure trusts (also known as constitutional trusts), which falsely claim to eliminate tax obligations for these scams can result in IRS audits, hefty penalties, or even criminal charges.

Why Small Business Owners Are Prime Targets for Trust Scams

Entrepreneurs and business owners are often targeted because they:

✅ Earn significant income, making them attractive for tax avoidance schemes
✅ Own assets like real estate, intellectual property, and business equity
✅ Seek legal ways to reduce tax burdens and protect wealth
✅ Lack the expertise to navigate complex tax and estate laws

Scammers take advantage of this by promoting "exclusive" tax loopholes and trusts that promise to eliminate income tax, protect assets from lawsuits, and shield wealth from the IRS—all of which are false claims .

---mmon Trust Scams Targeting Small Business Owners**

1. The "Pure Trust" or "Constitutional Trust" Scam

Scammers market pure trusts (constitutional trusts, common law trusts, or sovereign trusts) as tax-free entities that are beyond IRS jurisdiction. They claim that transferring business or real estate assets into these trusts eliminates income tax liability, but the IRS has explicitly ruled that this is illegal .

🚨 Red flag*False tax-exempt status: No trust can legally exempt business income from taxation.

• Continued control over assets: If you still run your business, the IRS sees the income as taxable.
• Pseudolegal jargon: Scammers misuse terms like “sovereign citizen” or “outside IRS jurisdiction” to sound legitimate .

📌 Case Study: WesleTax Fraud
Actor Wesley Snipes fell for a similar tax evasion scheme, relying on the discredited “861 argument” to claim that U.S. income taxes didn't apply to him【5†source】. He didn't file tax ret​ears, was convicted of tax evasion, and served time in federal prison .

**2. The 643(b) Trus

A newer version of the pure trust scam, 643(b) trusts claim to avoid income and capital gains taxes by misinterpreting Section 643(b) of the Internal Revenue Code. These fraudulent trusts falsely assert that income assigned to a trust's principal is not taxable .

🚨 Red flags:

• Trust promoters 000 to $70,000 for fraudulent structures .
• The trust “leases” assets back to you, crealusion that income is non-taxable.
• The IRS has issued direct guidance stating this arrangement does not eliminate tax obligations .

📌 IRS Warning: The IRS has explicitly rejected 64 scams and warned taxpayers that participating in these schemes could lead to audits, penalties, or criminal charges .

How to Spot a Trust Scam and Protect Your Business

ting up a trust, look for these red flags:

🔴 “No Taxes Ever!” – Legitimate trusts reduce taxes but cannot eliminate them entirely.

🔴 “Exclusive Tax Loopholes!” – If it's secret or only available to the wealthy, it's likely a scam. The IRS doesn't create hidden tax breaks .

🔴 “Act Fast Before Laws Change!” – Scammers pressure victims to act que they have time to research.

🔴 “Complex Multi-Layered Trust Structures” – Overcomplicated structures often hide fraudulent schemes .

🔴 “Lack of Transparency” – If the promoter won't clearly explain the trust's worgal terms, it's a red flag .

Legitimate Trust Strategies for Small Business Owners

If you're a **small businelooking for legal ways to protect assets and minimize taxes, consider these legitimate trust options:

✅ Revocable Living Trusts – Ensure business continuity and avoid probate.
✅ Irrevocable Trusts – Provide tax benefits and legal asset protection.
✅ Grantor Trusts – Enable tax-efficient wealth transfer.
✅ Business Succession Trusts – Allow for a smooth transition of business ownership .

Final Thoughts: Work with a Trusted Estate Planning Attorney

Trusts can be a powerful toolness owners, entrepreneurs, and real estate investors**, but scams are rampant. Never trust a promoter who offers “secret tax loopholes” or promises “tax-free wealth protection.”

💡 Protect your business and assets the right way. Always work with a qualified estate planning attorney to set up a trust that meets your financial goals while complying with tax laws .

👉 Have questions about setting up a trust the right way? Contact an experienced estate planning attorney today! Sources Cited:

1. IRS: Abusive Trust Tax Evasion Schemes
2. FTC: Scams Targeting Small Businesses
3. IRS: Pure Trusts Are Not Exempt from Taxation
4. Michigan Attorney General: Tax Scams for Small Businesses
5. Tax Foundation: Wesley Snipes and the 861 Argument
6. Forbes: Wesley Snipes Loses $23.5M Tax Case
7. IRS: Section 643(b) Trust Tax Avoidance Schemes
8. IRS: Recognizing Tax Scams
9. Taxpayer Advocate Service: Tax-Related Scams
10. IRS: Dirty Dozen Tax Scams