Feds Sue To Shut Down Tax ‘Elimination’ Scheme Using Charitable Annuity Trusts
Justice Department Documents & Publications
On Feb. 23, the United States filed a complaint seeking an order prohibiting John Hugo Eickhoff Jr., Rhonda Kaye Eickhoff, Hoffmann Associates LLC, Aric Elliot Schreiner, Columbia CPA Group LLC, John Williams Gray II and Damon Thomas Eisma from organizing, promoting or selling an allegedly unlawful tax scheme involving the use of charitable remainder annuity trusts (CRATs).
The government allegations detail the defendants' involvement with at least 70 CRATs, in a scheme that has resulted in an estimated $40 million of taxable income going unreported and at least $8 million in tax revenue losses.
According to the complaint filed in the U.S. District Court for the Western District of Missouri, defendants falsely claim that customers following their CRAT scheme can sell property in a way that eliminates the federal tax on the income generated.
Specifically, the government alleges that each defendant participates in one or more of the following steps involved in the scheme: (1) convincing customers to contribute property to a CRAT (usually real property that has gained value over time); (2) unlawfully inflating (stepping-up) the cost basis in the property; (3) selling the property to purchase an annuity; and (4) falsely reporting the annuity payments received by the customers as tax-free distributions of income made by the CRAT.
The complaint further alleges that the defendants know or have reason to know that their statements to customers about the supposed tax benefits of the transaction they promote are false or fraudulent.
Deputy Assistant Attorney General David A. Hubbert of the Justice Department's Tax Division made the announcement.