For the past several years, Family Limited Partnerships (FLP) have been all the rage. Some advocates suggest that this form of entity is an extraordinary vehicle for holding assets and conducting business. The claim is that under an FLP arrangement, a person derives substantially more protection and tax benefits than those afforded through other means, such as a corporation.

And it’s certainly true that FLPs can provide substantial tax benefits. But like anything else, FLPs they can be abused by taxpayers and misunderstood or ignored by the IRS. Such may very well be the case with the FLPs offered by a company known as Jefferson Gage, LLP. The principles of that company are Phillip Kaiser and Douglas Mueller, both of Missouri.

Kaiser and Mueller marked a number of tax planning strategies and FLP entities over the Internet for several years. Some of the planning strategies they offer include:

  • Charitable Trust Plus
  • Stock Equity Loan Program
  • Opportunity Shifting Limited Partnership
  • Cross Over Limited Partnership
  • Family Limited Partnership
  • Philanthropic Limited Partnership
  • Step Up Family Limited Partnership
  • Private Deferred Offshore Annuity
  • Personal Holding Company Bailout Program
  • Subchapter S Corporation Asset Protection Plan
  • IRA Boost
  • NQSO Freeze
  • Home Security Trust
  • Short Term Grantor Annuity Trust or Zero Out GRAT

In 2003, the duo came under audit by the IRS. The IRS agent in charge took much interest in the planning strategies the firm offered to the public. The agent reviewed some of the materials published on the Internet and determined that there may be some “abusive tax shelter” attributes to the strategies. The agent asked the authorities within the IRS for permission to pursue a full scale audit to determine whether the firm and its principles should be the subject of a lawsuit for injunction to shut down the sale of their planning strategies. The investigation was approved.

Why You Should Beware of Shady tax Schemes!

As part of the investigation, the agent issued summonses to Kaiser, Mueller and their companies seeking all the materials related to all of their programs. This included not only the marketing materials but the names and addresses of all clients to whom any of the programs were sold.

Kaiser and Mueller contested the summonses in federal court, claiming that the agency issued the summonses in bad faith and solely to retaliate against Kaiser and Mueller for contesting audits on behalf of their clients. According to court records, Kaiser, an attorney, and Mueller, a CPA, had success in the past reducing the tax audit claims made by the same auditor against some of their clients. The two claimed that “bad blood” on the part of the agent was responsible for the investigation and the summonses.

Crooked Tax Planners Get Their Clients into Deep Trouble

Unfortunately, the United States Court of Appeals for the Eighth Circuit disagreed. After an appeal by Kaiser and Mueller to the Appeals court, the court affirmed a lower court’s decision that ordered the summonses enforced and ordered the two men to appear before the IRS to disgorge their records, including the names of their clients.

On the basis of the court records I reviewed, I cannot determine whether the planning strategies used by Kaiser and Mueller were valid or not. On the basis of what I’ve seen, they do not appear to be anything at all like the typical tax protester materials I see on the internet, nor do they appear to fall into the category of “abusive tax shelters” such as those offered by some of the high-powered accounting firms in the past. In fact, Kaiser argued to the court that his programs could not be abusive tax shelters precisely because they were not identified by the IRS as “listed transactions”. These are structures the IRS claims have shelter attributes by their very nature.

Still, the two were ordered to turn all their records over to the IRS. That means the agency either now has or is in the processing of obtaining the names of all the clients who used the services of Kaiser and Mueller to set up entities and engage in tax planning strategies.

If you used their services, you should set up an appointment to talk with me. We should evaluate what you did and what, if any, exposure you have as a result of what you did. It is quite likely that there’s not one thing wrong with what you did. However, you should have an independent evaluation to confirm that.