Summarized Tax Strategies

Yacht or Airplane Leasing

• Taxpayers buy a high-value asset (like a yacht or plane) and lease it back to a charter operator.
• Depreciation and operating expenses generate large deductions, especially under bonus depreciation.
• Losses may be non-passive if the owner materially participates in management and scheduling.
• Occasional use or limited oversight risks hobby-loss classification under IRC §183.
• Even if active, Excess Business Loss (EBL) limits cap current-year deductions ($305k single / $610k married for 2025).
• Strong documentation and genuine profit intent separate a defensible strategy from a hobby.

Source: Advanced Tax Strategies

Real Estate Syndicate / REPS

• Syndicate investors claim depreciation and losses passed through from large multifamily or commercial projects.
• To deduct these losses against W-2 or business income, the taxpayer must qualify as a Real Estate Professional (REPS) and materially participate.
• Passive investors or limited partners generally fail both tests.
• Some promoters oversell the idea that a REPS declaration alone unlocks losses — it doesn’t (see Gragg v. United States).
• IRS scrutiny increases when CPAs certify dozens of identical REPS filings without individualized proof.
• Done right, syndicates can build wealth, but paper losses alone don’t move the tax needle.

Source: Advanced Tax Strategies

Working Interest in Oil and Gas

• Investors can deduct Intangible Drilling Costs (IDCs) immediately — often 70–85% of total well cost.
• Under IRC §469(c)(3), a direct working interest (without limited liability) is treated as non-passive.
• This can offset active income even without 500 hours of participation.
• The trade-off: unlimited liability for environmental, legal, and operating risks.
• Using an LLC or limited partnership to cap exposure often voids the non-passive treatment.
• Real working-interest investors accept genuine business risk — paper “participation” doesn’t qualify.

Source: Advanced Tax Strategies

Structured Equipment Leasing

• Investors fund or finance equipment purchases, leasing assets to an operator through a structured entity.
• Deductions stem from accelerated depreciation and interest expenses.
• If the investor lacks operational control or risk, losses are passive.
• Guaranteed lessees or guaranteed buybacks undermine economic substance.
• Courts have denied deductions for “lease-in/lease-out” or “sale-leaseback” schemes with no genuine business risk (AWG Leasing Trust v. United States).
• The IRS focuses on whether the taxpayer actually bears risk and has profit motive beyond tax savings.

Source: Advanced Tax Strategies

Conservation Easements

• Partnerships buy land, obtain inflated appraisals, and donate “development rights” to claim large charitable deductions.
• The deduction equals the alleged drop in property value — often several times the investment.
• IRS challenges target overvalued appraisals and lack of bona fide conservation purpose.
• Courts have consistently disallowed syndicated easements marketed for tax profit rather than preservation.
• Legitimate easements exist when donors truly restrict development for environmental or historical benefit.
• Syndicated versions are now treated as listed transactions requiring disclosure.

Source: Advanced Tax Strategies

Discounted Roth Conversions

• Investors convert hard-to-value private assets from a traditional IRA to a Roth at a “discounted” valuation.
• The lower appraised value reduces conversion tax, and future growth occurs tax-free.
• IRS risk: revaluation or penalty if the discount is deemed artificial.
• Illiquid assets can trap value — you can’t undo a bad investment once it’s inside the Roth.
• Works only when discounts are justified by true lack of marketability or control.
• Aggressive appraisals have drawn scrutiny after Summa Holdings and Peek v. Commissioner.

Source: Advanced Tax Strategies

Captive Insurance Companies

• Businesses form their own insurance companies (“captives”) to insure real operational risks.
• Premiums paid are deductible to the operating company; captives may enjoy lower taxation under IRC §831(b).
• Problems arise when “insured risks” are trivial or premiums lack actuarial support.
• IRS victories (Avrahami, Caylor Land, Reserve Mechanical) show that fake or circular risk pools fail the substance test.
• A well-designed captive requires independent underwriting, claim history, and meaningful risk distribution.
• Best suited for larger businesses with uncovered or high-deductible risks, not for tax deferral alone.

Source: Advanced Tax Strategies

Deferred Sales Trusts (DSTs)

• DST promoters claim you can sell appreciated property, defer gain, and reinvest through a trust.
• Often structured as installment sales where the “trust” is a related party or alter ego.
• IRS challenges these under economic-substance and related-party rules — most fail to achieve true deferral.
• If you still control the money or bear no real risk, the gain is immediately taxable.
• A legitimate installment sale is fine; a disguised cash sale in trust wrapping is not.
• DSTs can work only with arm’s-length buyers and properly structured notes.

Source: Advanced Tax Strategies

Monetized Installment Sales (MIS)

• MIS structures combine a long-term installment sale with an immediate loan against the sales note.
• The result: the taxpayer gets cash up front but claims the gain is deferred.
• The IRS (Chief Counsel Memo 202118016) rejects this logic — the loan proceeds are taxable sales proceeds.
• Common features: intermediaries, back-to-back loans, and circular cash flow that eliminate real risk.
• Audit exposure is high; the IRS views these as abusive listed transactions.
• Standard installment sales are fine — monetized versions aren’t.

Source: Advanced Tax Strategies

Charitable Remainder Trusts (CRTs)

• CRTs let taxpayers donate appreciated assets, defer gain, and receive income for life.
• The trust sells the asset tax-free and reinvests proceeds for income payouts.
• The donor gets an upfront charitable deduction for the remainder value passing to charity.
• Abuse occurs when payout rates are inflated or remainder interests are negligible.
• Used properly, CRTs can combine philanthropy with income smoothing.
• Used aggressively, they’re treated as tax shelters with disallowed deductions.

Source: Advanced Tax Strategies

Deferred Gain Deferral & Exit Strategies (1031, 453, etc.)

• Section 1031 exchanges defer both capital gain and depreciation recapture for reinvested real property.
• Section 453 installment sales defer gain recognition as payments are received.
• Both require arm’s-length transactions and adherence to timing rules.
• Deferral isn’t avoidance — gain eventually surfaces unless stepped up at death.
• The best use of deferral is leveraging cash flow to build future wealth.
• Poor planning can convert deferral into permanent tax inefficiency.

Source: Reducing Taxes

Economic Substance Doctrine (Reference for Advisors)

• Every transaction must have a substantial non-tax purpose and meaningful economic effect.
• Codified in IRC §7701(o), requiring objective profit motive beyond tax savings.
• Applies across all aggressive strategies — from leasing schemes to syndicated easements.
• Transactions lacking real risk, business purpose, or capital at stake fail the test.
• Documentation should demonstrate decision rationale, not just tax outcome.
• In audit terms: if you can’t explain why you did it other than “for the deduction,” it fails.

Source: Advanced Tax Strategies

“For the Cynics” Perspective (Investor Psychology)

• Early adopters make money; latecomers usually buy the hype.
• If it’s being sold in a webinar, it’s already been picked over by insiders.
• Tax shelters thrive on fear of missing out — and on the illusion that taxes can vanish without risk.
• Real wealth comes from sound investments, not clever avoidance.
• As WCG puts it: the best strategies still look good five years later.

Source: Advanced Tax Strategies