The opportunity to make a lot of money in an investment scheme and avoid paying taxes on it can be very alluring, but such offers are a downright scam. Here are some tips on how to avoid getting burned.

If an "opportunity" appears too good to be true, that’s just what it is. If others, including your friends, claim to have been paid, it could be a well-orchestrated scheme where some investors are paid back in order to encourage others to invest.

Know the person or company with whom you are dealing. Do your homework. Visit the business location and consult with local banks, regulatory authorities or the company's accountant. Real investments are audited; scams are not.

Follow common business practice. Be wary of businesses that operate out of post office boxes and have no street address, or of dealing with individuals who are never in the office when you call, but always return your call later.

Make sure you fully understand any business agreement you enter into. If the terms are complex, then you should have them reviewed by a lawyer.

Be wary of business deals requiring you to sign non-disclosure or non-circumvention agreements designed to prevent you from verifying the credentials of the people with whom you intend to do business.

Avoid anyone encouraging you to break the laws of any nation or pitches an investment relying on complete secrecy. A secret is safe if only you know about it, and this is impossible when using an offshore structure.

Determine how safe the investment is before spending a lot of time and money investigating the offer. If you are being asked to trust your money to an unknown party, be suspicious.

Be wary of offers that pressure you to make a decision in a short period of time.

If your instincts warn you to beware, don't get involved until you feel comfortable. Greed can overwhelm common sense, and this is always a mistake.

Avoid investment or loan schemes where the main benefit of the transaction appears to be the tax breaks you will receive.

At the best of times, schemes to avoid taxes are a dangerous business. Take the case of one of the legends of country music, Willy Nelson. At his peak Nelson made millions of dollars, and with the help of his advisers he entered into some complex transactions that enabled him to avoid paying all taxes due. Years later, when he was well past his earnings peak, the IRS nabbed him for tax avoidance and penalised him millions of dollars. Nelson had to stage special concerts to try and repay the tax authorities.

The problem with tax avoidance schemes is that the majority of tax laws include a provision that you cannot enter into a scheme to avoid tax, the kind of blanket provision that really gets you into trouble. It’s not like the road code, where you either broke the law or you didn’t, because in taxation a lot is open to interpretation and it can take a lengthy court battle to decide who is right.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.