When it comes to tax savings opportunities, when is something that sounds too good to be true actually too good to be true? Many taxpayers are unaware of perfectly legitimate options for lowering their tax bills. At the same time, tax schemes are becoming increasingly common, pushed forward by promoters willing to manipulate taxpayers for their own gain. How can you tell which is which?
In our recent blog, we covered key tips on how to spot a scam. To dive deeper, today we’ll look at a specific example: a recent tax scam known as the “sovereign tribal tax credit.” By dissecting this tax scheme, you’ll receive a crash course in how to identify when an offer is actually too good to be true.
What Was on Offer?
What exactly was on offer with these sovereign tribal tax credits? The first thread in scammers’ web of deceit was actually something true: Native American tribes receive billions of dollars in tax credits from the federal government due to their sovereign status. By starting with a verifiable fact, promoters build trust before introducing something false: the next claim was that tribes were selling credits to investors at a discounted price. Promoters claimed that their company had formed a partnership with a tribal organization to facilitate these sales. The tribes would use the revenue from the sales to support Native American businesses and infrastructure projects; investors would use the tax credits to offset their tax liability, bought at the bargain price of 50 to 60 cents per dollar.
Why the Facts Didn’t Add Up
Now let’s unpack this offer and notice where the details of how this deal works start to get fuzzy. At first glance, this pitch sounds similar to the clean energy tax credits made available to businesses by the Inflation Reduction Act. The IRA allows businesses who are eligible for these tax benefits to sell them to a business in need of the tax break. However, the Treasury has clarified that no federal tax credits are allowed to be sold other than those outlined in the Inflation Reduction Act. So this is Problem Number One.
Secondly, we need to ask the question: what is actually being bought and sold here? When businesses are granted permission to sell a tax credit, what they are actually selling is an ownership interest in an asset like solar panels, for example. So what is the asset connected to these sovereign tribal tax credits? The actual credits are tied to tribal lands. There lies the rub: people who are not part of the native tribe cannot own tribal land. So how can an investor legally buy ownership interest in tribal land if the law prohibits them from owning that land? The claim simply doesn’t add up.
Popular business news outlet Bloomberg came out with an investigative report that breaks down the problem even further. Journalists looked into White River Energy Corporation, which claimed to have sold $24 million in “sovereign tribal tax credits” in less than a year, out of a total of $64 billion in available credits. The fact is that the U.S. Department of Interior only manages $8 billion in assets for tribes and tribal members and distributes $1 billion per year. How could it be possible that Whiter River Energy Corp. alone has access to eight times the total amount of government-managed assets? The truth is in the math.
Other Red Flags
The items listed above are just some of the many red flags attached to the sovereign tribal tax credits. Here are a few key others:
• Unverifiable credits
• Fabricated tribal involvement
• Misrepresentation of legal opinions
• Aggressive marketing tactics
Thanks to the investigative journalism of Bloomberg we know that the U.S. Treasury Department has outright stated that these credits do not exist. Consider: who has the authority to create federal tax credits? We have a legislative process where bills originate in the Senate or the House, then must be approved by both chambers, and finally be signed into law by the President of the United States. If you see promotional materials that talk about an entity other than Congress creating a tax credit, that raises a red flag. In addition, the tribes themselves, such as the Cherokee Nation, have denied any association with these promoters and even sent them cease-and-desist letters.
Many of the promotional materials also claim validation from well-known law firms, but those law firms have denied ever issuing their opinions. This is a textbook example of how scammers leverage the complexity of the tax code—and in this case, tribal law—to confuse taxpayers. What would a legitimate legal opinion entail? You would need a true expert who meets court standards. This includes assessing their degrees, certifications, professional background, and length of time in their field. You also need to look into the specialty level of the topic that they are giving an opinion on. Consider: Who else regards them as an expert? What source documents do they rely on to issue their opinion? Did they rely on Treasury regulations and real court cases?
Another red flag is the use of aggressive marketing tactics. Promoters intentionally create a sense of urgency by claiming that only a limited number of credits are available for a limited amount of time. The deadline alone is not a red flag, since timing is a factor in many investments, but the push to make an immediate decision combined with these other factors creates a major red flag.
How to Spot the Next Tax Scheme
Though a thorough breakdown like this may make it seem obvious that the sovereign tribal tax credits are a scam, the next tax scheme that comes your way may not feel as obvious. However, you can use the same takeaways from this case to evaluate the next opportunity. One takeaway is not to assume that the presence of a recognizable name or brand means the opportunity is legitimate. These scammers used reputable law firms, recognizable Native tribe names, and the U.S. government itself as “verification sources” in their promotional materials. None of it was true.
One name you may not see is the promoter’s name. They may have agents representing them and may avoid signing off on any official tax documentation—a huge red flag. Similarly, the CFO of White River Energy Corporation told reporters that they could not issue a statement because they needed to protect their “confidential trade secrets” for “competitive purposes.” The lack of clarity and detail potentially points to a shaky foundation.
Lastly, part of how the scammers confuse taxpayers is by relying on their lack of knowledge about how tax credits work. In the promotional materials about the sovereign tribal tax credits, nothing is stated about how exactly these credits help develop the nations. Why would these tribes be raising all of this cash? With a simple understanding of how tax credits work and where to turn to verify the legitimacy of a tax strategy, you can avoid falling into a scammer’s trap.
The most reliable way to build a strategic tax savings plan is to work with a Certified Tax Planner. Reach out to us today to get connected to a verified expert.
