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...Tax scams are cyclical in nature. An abusive strategy that is discovered and then
prohibited by a change in the law will eventually resurface after a few years in a slightly
modified form. One such scam that has survived in various forms since the inception of the Internal Revenue Code has been that of converting yourself, your business, and your family into a “church” that thereafter lives, according to promoters, a perpetually tax-free existence.

The most recent incarnation of the church scam is the so-called “corporation sole”. There are, actually, statutes on the books of many states that authorize a form of
corporation called the “corporation sole”, and it is meant to provide a limited liability
form of organization for a true church organization. However, tax scam promoters are
marketing the corporation sole as the ticket for the average American to make him and
his business tax free. According the website of one corporation sole promoter: “Once you declare your pauper status, your income is tax-free to you and your assets cannot be encumbered with a property tax. Your earnings are also tax-free and are considered the Income of the religious organization.”2

... Unfortunately, however, a seemingly increasing number of foundations are being created not to serve any public purposes, but merely as thinly-disguised tools to further the lifestyles of the wealthy persons who create them and to pass assets between generations with minimal, if any, tax consequences.

During the course of my professional practice I have run across private foundations whose activities to benefit the public were little more than annually paying
for the expenses of the donors to review the reefs off the coast of Cozumel to make sure that they were still there. To the extent that these foundations made bona fide charitable contribution, there was often a significant quid pro quo that was received, ... There also seems a perception ( 5 ) among some wealth planners that private foundations are not regularly audited, and that there are only slight penalties for a client who uses a private foundation as essentially a form of family trust.
That private foundations are marketed as wealth accumulation and estate planning
tools emphasizes that many, if not the majority of, donors consider the assets of the
foundation to continue to be family assets even after the donation is made. Thus, private foundations are sometimes marketed as a “get your donation now, and let your children live off the management fees forever after” sort of arrangement....

http://finance.senate.gov/hearings/testimony/2004t...

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