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Two Taxpayers Learn “Sham” Trusts Will Not Shelter Income

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APRIL 16, 2001 VOLUME 8, NUMBER 42

Most professional observers agree that income tax avoidance schemes are on the rise. This may be because of a reduction in Internal Revenue Service personnel, or increasing public familiarity with trusts and other entities, or a fundamental shift in the levels of greed and gullibility on the part of taxpayers. The problem is aggravated by the widespread use of the internet in deceptive marketing of abusive tax schemes.

Trusts, family limited partnerships, limited liability companies and other devices may have legitimate tax-saving purposes or effects. When a promoter insists that creation of a trust allows an individual to treat all personal expenses as business deductions, or permits the individual to avoid taxation altogether based on an alleged provision of the U.S. Constitution, the scheme will be subject to challenge.

The IRS has begun to step up its attacks on so-called “Constitutional trusts”, “pure trusts” and similar devices. Walter and Susan Bowen of California and Shirley Johnson of Indiana can attest to the IRS’ get-tough policy.

Mr. and Mrs. Bowen attended a seminar put on by National Trust Services in 1995. The couple paid $9500 for the week-long program, during which they “learned” that they could avoid income taxation through the use of trusts. Mr. and Mrs. Bowen then established the “Bow N Arrow Family Trust” and the “Naturally Right Co.” business trust using documents from National Trust Services.

Mr. Bowen then filed income tax returns without listing all of the 1995 income from his chiropractic business. Although his returns were prepared by an accountant, Mr. Bowen did not give the accountant a copy of the trusts or enough information to determine whether the income was properly reported.

The result, after an appeal to the U.S. Tax Court, was predictable. Mr. and Mrs. Bowen not only owed additional taxes of over $400,000, but also were assessed penalties of $80,319. Their tax-avoidance plan backfired. Bowen v. Commissioner, February 27, 2001.

Shirley Johnson’s case was even more egregious. Not only were deductions claimed by her “NJSJ Asset Management Trust” improper, resulting in an assessment of $31,649 plus penalties of $6,330, but on appeal to the U.S. Tax Court she refused to answer questions about her tax filings, citing her Fifth Amendment right to prevent self-incrimination. Her attorney in that proceeding, Joe Alfred Izen, Jr., and his associate Jane Afton Izen, were found to be obstructionist in their representation of Ms. Johnson. Finding that Mr. Izen “has a long history of involvement with sham trusts,” the Tax Court imposed sanctions against the attorney totaling $9,394.56. The appeal of tax and penalties was dismissed. Johnson v. Commissioner, February 27, 2001.

“Pure trusts”, “Constitutional trusts” and similar devices have been aggressively marketed on the internet almost from the inception of the new communication medium. A cynic might suggest that it is even easier to take advantage of human gullibility and greed through the nearly-anonymous contact the internet permits. Paradoxically, abusive trust schemes have been effectively debunked on the internet as well. National Trust Services, for example, is well-known to internet search engines. That organization and its apparent successor Trust Educational Services are described at a site maintained by computer programmer Roger Wilcox. More information about National Trust Services and other abusive trust arrangements is available from California attorney (and “Tax Prophet”) Roger Sommers.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.