Your Clients Have Probably Heard This Risky Tax Pitch

"I'm seeing more and more tax 'opportunities' that follow this general logic," Jarvis wrote. "You invest $100,000 to gain ownership of an entity that has a product that can then be donated to a qualified charity after being assessed a value of $500,000 so you get a $500,000 deduction with only a $100,000 investment."

Jarvis has seen this thinking applied to art, agriculture and pharmaceuticals, and he hears more examples of these types of investments being pushed. This seemingly savvy approach to maximize a client's tax savings, he wrote, is highly problematic.

Doing Due Diligence

"I like to understand what my clients are being peddled so I've done due diligence on these opportunities," Jarvis noted. "I've seen the [math] they use to support their arguments and I've reviewed the valuations by 'experts' that support their arguments.

"I am not an attorney," Jarvis continued, "but my overall take away is that these opportunities are not technically illegal but feel like the next instance of conservation easements, as in once the IRS scrutinizes they're going to say 'nice try, here's a giant tax bill with interest and penalties.'"

Arguably, Jarvis acknowledged, this perspective is hypocritical, because backdoor Roth contributions, created accidentally, were "not at all intended" by Congress.

"I'm all for doing those but playing around with valuations that fly in the face of a recent exchange of money is not something I'm getting into," he concluded. "What am I missing? Do I just need to get on board with 'anything I can get away with is worth doing?'"

Broad Disapproval

Several dozen commenters weighed in on that question, including Jeff Levine, chief planning officer at Focus Partners Wealth.

"Like [Jarvis], I am seeing more and more of these 'buy today and donate tomorrow for 5X the value' scams," Levine wrote. "They are pure nonsense."

Many investors Levine has talked to who have been pitched this idea have been told that the donated property will be supported with independent valuations.

"The reality, though, is that few of those appraisals, if any, [would] likely hold up in court as 'independent,'" he warned. "When the appraiser is recommended by the group promoting the scheme and a large percentage of the appraiser's revenue is generated from related engagements, is the appraiser really independent?"

Federal courts have repeatedly answered "no" to that question, Levine said.

"And without a truly independent appraisal," he wrote, "taxpayers engaged in these transactions leave themselves especially vulnerable to penalties."

Added Robert Keebler, partner at Keebler and Associates: "These deals do not work and bad actors will go to jail. We need to protect our clients and do the right thing."

Nick Chertock, a tax advisor at Harness, suggested that compared to these donation strategies, a backdoor Roth is like "driving one mile over the speed limit," to which Jarvis replied that "back door Roth is going the speed limit exactly."

"I've personally been through audits where they get questioned and then approved as intended," Jarvis wrote.

Another commenter suggested that advisors themselves are being targeted with this scheme.

"I recently left a group for advisors that was all about peddling these sketchy tax schemes," wrote Jacob Rothman. "They are preying on ignorant advisors who think they are elite by having access to 'advanced tax planning' opportunities CPAs and average advisors don't know about."

Product explanation to the advisor is "very basic and scant," Rothman warned, and legitimacy is framed as "risk tolerance" — as if tax evasion and investing in an uncertain stock are the same thing.