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Tax Strategies That Actually Hold Up Under IRS Examination
Which tax strategies are legal, and which get flagged as abusive? A Las Vegas dual CPA/tax attorney breaks down what actually holds up under IRS examination.
7 min read
Lenny Whiting
Every year, a promoter finds a new way to sell business owners on tax strategies that promise to erase a six or seven-figure tax bill. Some of those strategies are legitimate — entity design, targeted investments, and charitable structures that the tax code genuinely allows. Others are on the IRS's own list of transactions it will challenge on sight. The difference isn't always obvious from a sales pitch, and it matters more than almost anything else in your tax plan, because getting it wrong doesn't just cost you the deduction — it can cost you penalties, interest, and years of examination.
If you haven't yet covered the fundamentals — maxing retirement contributions, tax-loss harvesting, standard charitable giving — start with our guide to tax strategies for high-income earners. This piece picks up where that one stops: the strategies aggressive enough to draw IRS scrutiny, and how to tell them apart from the ones that don't.
What makes a tax strategy "advanced" instead of just risky?
An advanced tax strategy uses provisions already in the tax code — entity structure, timing, targeted investments, or charitable mechanics — to reduce a tax bill beyond what standard deductions and retirement contributions capture. What separates "advanced" from "risky" is whether the strategy's economic substance matches its tax treatment, or whether it exists mainly to generate a deduction that's out of proportion to the money actually put at risk.
That distinction is exactly where the IRS draws its own line. A cost segregation study on a real building you own and depreciate is advanced tax planning. A partnership interest sold to you mainly so you can claim a charitable deduction worth two and a half times your investment is something else.
Which advanced tax strategies has the IRS flagged as abusive?
Two structures show up again and again in advanced tax strategy pitches to business owners and high earners, and both are formally on the IRS's list of transactions it treats as abusive: syndicated conservation easements and micro-captive insurance arrangements.
Syndicated conservation easements have been an IRS-identified listed transaction since Notice 2017-10, which describes promoters syndicating ownership interests in a pass-through entity that owns real property, then using an inflated appraisal to generate a charitable deduction that "significantly exceed[s] the amount invested." Micro-captive insurance transactions carry similar scrutiny — the IRS's Notice 2025-24 confirms these arrangements have been formally classified as listed or reportable transactions, with strict disclosure deadlines and penalty exposure for taxpayers and their advisors who don't file the required disclosure statements.
A third structure worth naming: the deferred sales trust, often marketed as a way to spread capital gains from a business or real estate sale over many years. The IRS filed suit to enforce a summons against a deferred sales trust promoter, and the underlying structure frequently relies on the kind of "monetized installment sale" arrangement the IRS's own Office of Chief Counsel has already concluded is built on a "flawed" legal theory. That doesn't mean every installment sale is a problem — a genuine installment sale under Section 453 is a normal, compliant way to spread a gain. It means the version where a third-party "lender" hands you the sale proceeds up front, dressed as a nonrecourse loan, is the version the IRS is actively litigating.
| Structure | What the pitch promises | Why the IRS has flagged it |
|---|---|---|
| Syndicated conservation easement | A charitable deduction worth multiples of your investment | Notice 2017-10 lists it as an abusive listed transaction based on inflated appraisals |
| Micro-captive insurance | Deductible "premiums" paid to a captive insurer you control | Notice 2025-24 confirms reportable/listed transaction status with mandatory disclosure |
| Deferred sales trust / monetized installment sale | Spread a large gain over years while getting cash up front | IRS Chief Counsel has called the underlying loan theory flawed and is actively litigating promoter cases |
| Cost segregation study | Accelerated depreciation on a real property you actually own | Standard, well-established strategy — not a listed transaction |
| Entity conversion (e.g., sole prop to S-corp) | Lower effective tax rate on business income | Standard, well-established strategy — not a listed transaction |
What compliant advanced tax strategies actually reduce your bill?
The strategies that hold up share one trait: the deduction or deferral is proportional to real economic activity, not manufactured by the transaction's paperwork. At CPA Attorney LLC, the advanced tax strategies we implement fall into a narrower, more defensible set — entity design and income shifting, targeted investments like renewable energy projects and engineered real estate depreciation, charitable structures such as donor advised funds and charitable remainder trusts, and credit purchasing tied to actual energy or employment activity. None of these depend on an appraisal that's several multiples of the cash involved, and none of them require a "lender" who has no real risk of not getting repaid.
These are ordinary taxation strategies, not shortcuts — the kind of tax savings that come from correctly using provisions already on the books, not from inventing new ones.
If you run a pass-through business, the interaction between an entity's structure and your effective tax rate is usually a bigger and safer lever than any of the flagged shelters above — see our companion piece on entity design and income shifting for how that works in practice. If you're weighing a future sale of the business rather than year-to-year planning, the compliant strategies look different again — see the tax strategy timeline for selling your business.
How do you tell the difference before you sign anything?
A strategy is worth a second opinion — not necessarily a rejection — if any of these are true: the projected deduction is a multiple of what you're actually putting at risk, the promoter is compensated as a percentage of the tax benefit rather than a flat fee, the arrangement requires a new entity you don't otherwise need, or your existing CPA has never heard of it. None of those facts alone proves a strategy is abusive. Together, they're the profile the IRS's own listed-transaction notices describe.
Before implementing anything unfamiliar, ask whether a tax attorney — not just the promoter who's selling it — has reviewed the structure. A CPA can tell you what a strategy does to your return. An attorney can tell you what happens if the IRS disagrees with it, which is also the moment to know when a Las Vegas business owner needs a business tax attorney rather than just a CPA.
Advanced tax strategies FAQ
Are advanced tax strategies legal? Most are. The strategies that get business owners in trouble are the small subset the IRS has formally identified as listed or reportable transactions, such as syndicated conservation easements and micro-captive insurance — not advanced planning in general.
What's the real difference between tax avoidance and tax evasion? Tax avoidance uses legal provisions to reduce a tax bill and is the basis of all legitimate planning; tax evasion misrepresents facts or manufactures a deduction disconnected from real economic substance, which is what triggers listed-transaction status and penalties.
How do I know if my advisor is pushing a listed transaction? Check the strategy against the IRS's published list of recognized abusive and listed transactions — if it's not there and your advisor can point to the code section it relies on, that's a meaningfully different conversation than a strategy that requires an inflated appraisal or a "loan" from a lender with no real recourse.
Past results do not guarantee future outcomes. Each case is unique and results depend on individual facts and circumstances.
Ready to see which advanced tax strategies actually apply to you? Schedule a consultation with an attorney who is also a licensed CPA — every strategy we implement exists in the tax code, regulations, or case law.
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About Lenny Whiting
CPA Attorney Owner
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