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BUT THE WEB SITE SAID IT WOULD WORK!

December 11, 2003

Detect the flaw in this plan:

"According to the complaint, Bishop and Fuller’s customers paid an initial fee of $7,500 to participate in the scheme. The customers, who are self-employed professionals or business owners, then terminated their employment relationship with their own company and contracted with a purported Barbados “employee-leasing” company - Global Executive Placement, Ltd. - to hire them and “lease” their services to a U.S.-based company, Executive Placement Services, a company that Bishop and Fuller own. Executive Placement Services then “leased” the customers’ services back to the customers’ own company."

If you noticed that the plan requires the IRS to be willfully stupid, give yourself a pat on the back. This plan only works if the IRS is willing to believe that executives would really work for nothing on behalf of an offshore leasing company - and pay $7,500 for the privilege. Maybe the IRS is not entirely staffed with MENSA members, but that's asking a lot of stupidity. Then again, somebody was paying the $7,500.

PERMANENT INJUNCTION - THE IRS SEAL OF APPROVAL?

This plan came to light because the promoter of the plan, Cornerstone Strategic Advisors, LLC, was hit this week with a permanent injunction against promoting or implementing such plans.

They are apparently still game, though. While all references to the leasing plan seem to be gone from their website, they still are promoting an "S Corporation Strategy"-

"This strategy allows for tax avoidance on personal services income through year-end, 2005. The strategy is typically implemented by establishing a management company, to provide management services to the taxpayer's operating business at 'reasonable compensation' levels. The income is tax deferred from the outset and grows tax-free through the deferral period and is fully liquid and in the control of the taxpayer."

Gee, this sounds oddly familiar... think the IRS will buy it? Given the promoter's track record, scepticism seems in order.

Maybe they will explain to their potential customers, "Hey, there's no injunction against this one, so that means it's OK!" Buy only from promoters under permanent injunction, that's the ticket!

A PDF file of the injunction order is here.

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