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Farm Advisory

Faulty and Costly "Tax Avoidance" Plans

Farmers who are starting to make plans for the next tax year may hear pitches to buy "tax-avoidance" programs that supposedly can result in a sharp tax reduction compared to previous years.
We urge farmers to be very cautious about using some of these programs. They may fail to deliver the promised tax reductions -- and they may end up costing a farmer thousands of dollars in past-due taxes, penalties, and interest.

The Attorney General's farm division has received telephone calls and complaints from Iowa farmers who have suffered losses and major problems with such "tax-avoidance" plans.

Problems typically have begun when a so-called "tax professional" advertises that he or she can save a farmer substantial tax payments or even greatly reduce the tax obligation. The farmer pays a hefty fee for the plan, which may include restructuring the farm business to a partnership or corporation or other legal entity. In many cases, the farmer also pays a monthly fee for record-keeping.

At first, the plan seems to be working well. The farmer receives periodic reports from the program that the tax obligation is way down. It's all good news -- until the farmer receives an IRS notice that an audit will be conducted.

The audit may reveal that the plan did not work as promised, and the farmer may have to pay back taxes, plus interest and penalties.

We emphasize that most tax preparers and tax plans are reputable and effective. Just be sure you avoid the questionable ones.

Protect yourself. Be skeptical of ads that promise you huge tax savings that you've never had before. Get a second opinion from a reputable local tax-preparer -- before you enter into a scheme that could bring you financial loss or ruin.

Finally, please contact our office if you have complaints, or if someone offers you a plan that seems highly questionable or "too good to be true."


Iowa Attorney General Farm Division
321 East 12th St., Room 018
Des Moines, Iowa 50319
Phone: 515/281-5351
Fax: 515/242-6072
Email: farm@ag.state.ia.us