Court Bars Promoters As IRS Cracks Down On Charitable Remainder Trust Tax Schemes

A federal district court has permanently barred a tax professional and his company from organizing, promoting, selling, or marketing tax schemes involving charitable remainder annuity trusts (CRATs). It follows several related injunctions granted previously.

On May 3, 2024, the U.S. District Court for the Western District of Missouri permanently barred Missouri CPA Aric Elliot Schreiner and his company, Columbia CPA Group LLC, from promoting and participating in CRAT schemes. The court also ordered Schreiner to repay related “ill-gotten gains” totaling $400,000. Schreiner and Columbia CPA Group agreed to the court orders.

The government sued Schreiner, his company, and five other defendants to stop them from promoting the CRAT scheme. Last year, the court permanently barred Rhonda Eickhoff, John Eickhoff Jr., and Hoffman Associates LLC from organizing, promoting, selling, or marketing a tax scheme involving charitable remainder annuity trusts (CRATs). Injunctions against defendants John William Gray II and Damon Thomas Eisma had been previously filed.

At the time of the lawsuit, the government claimed that the defendants were involved with at least 70 CRATs, resulting in an estimated $40 million of taxable income going unreported and at least $8 million in tax revenue losses.

According to the government’s amended complaint, the scheme encouraged taxpayers to contribute property—often real property that had gained value over time—to a CRAT. The property’s basis was then unlawfully inflated on tax documents. After the property was sold, the proceeds were used to buy an annuity—those payments were either not reported or were reported as tax-free distributions from the CRAT.

Dirty Dozen

Abusive arrangements using CRATs are a concern of the IRS. On April 24, 2024, the IRS listed CRAT abuse—those trusts misused to eliminate capital gain—as one of their “Dirty Dozen” schemes.

The “Dirty Dozen” is an annual list of common scams taxpayers may encounter. The list of 12 scams and schemes—hence the name—started in 2002. These scams and schemes put taxpayers, businesses, and the tax professional community at risk of losing money, personal information, and data. While the Dirty Dozen is not a formal listing of IRS enforcement priorities, it’s designed to raise awareness and protect taxpayers and tax professionals.

Charitable Remainder Trusts

A charitable remainder trust is an irrevocable trust, sometimes called a “split interest” trust. That’s because the trust benefits two interests: the beneficiaries and your favorite charity.

Charitable remainder trusts can be an excellent tax planning tool when structured and administered properly. Here’s how they most commonly work.

1. The donation. You donate assets—often appreciated assets—to the trust. In exchange, you are entitled to a tax deduction based on a formula. Since the charity gets the money after your beneficiaries receive an income stream, the formula takes into consideration the interest rates at the time of the donation, the length or term of the trust, and the estimated payouts.
2. The payout. The terms of the trust govern how much—and when—your beneficiaries will receive. Under current IRS rules, this amount must be at least 5% but no more than 50% of the value of the trust each year.
3. The final distribution. After the term of the trust (or the death of the beneficiaries, whichever happens first), the remainder of the trust is distributed to your named charity.

You can structure the payout as a charitable remainder annuity trust (CRAT)—which pays a fixed annuity amount each year to your beneficiaries—or as a charitable remainder unitrust (CRUT)—which pays a fixed percentage based on the trust’s value. (Some additional distinctions apply, but those are the highlights.)

The result is tax-favored, but not tax-free. Remember, if something sounds too good to be true, it likely is.

Injunctions

The Department of Justice Tax Division has obtained injunctions against hundreds of tax return preparer and tax fraud promoters. You can find an alphabetical listing of those preparers and promoters (along with press releases, where applicable) on this page.

If you believe that one of the enjoined persons or businesses may be violating an injunction, the Tax Division asks that you contact them with details.