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The Core Issue with Solidaris Capital: Unraveling Tax Evasion, Charitable Deduction Misuse, and Regulatory Gaps
Solidaris Capital, headed by Geoffrey Dietrich, has become the subject of civil litigation and public dispute related to the promotion of certain charitable tax structures. Recent examples include litigation involving Head Genetics, with public commentary referencing figures such as Parkhill and Mark Bianchi in connection with how these disputes have been portrayed in the media.
In that context, critics have raised questions about whether certain asset valuations and representations align with underlying records, though these matters remain subject to legal process.
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Case Nub: Tax Evasion and Charitable Deduction Abuse.
The essence of the allegations is that Solidaris Capital is abusing charitable deductions. The company is accused of asking investors to purchase intangible assets at highly discounted prices, including intellectual property (IP). These assets are subsequently donated to charities, with investors enjoying tax deductions on assets that are overvalued.
It entails the manipulation of asset values through the use of appraisers, who are usually chosen by the promoters, and they provide overvalued valuations that are much higher than the actual purchase price. Indicatively, a property that was initially purchased for $500,000 may have a valuation of $10 million, enabling the investor to deduct tax twenty times the amount invested in the property.
Questions have been raised about whether some representations made to investors accurately reflect the economic substance of these transactions. Promoters, such as Geoffrey Dietrich, receive a high percentage of the money, while the people and the IRS suffer the loss of tax revenue.
The Structure of the Scheme: How It Works
One of the schemes marketed by Solidaris Capital is the Hear2There investment program. The process works as follows:
Intangible assets, including software licenses, are sold to investors at a very low price, which is usually 6 percent of the market value. The property is then transferred to a chosen charity with the donation being registered at a high value, often 20 times the value of purchase.
A valuation is made by an appraiser who is usually selected by the promoters as justification to the high price. It is on this inflated value that investors are allowed to take tax deductions using this rule of thumb based on the appraised value, yet the proper amount of the donation is much lower.
The investors end up gaining huge tax deductions, and the charity gains an asset that would have little meaning to them. These structures have raised concerns among observers about how valuation and appraisal processes are applied.
Regulatory Gap: No Examination by IRS and SEC.
Lack of regulatory control is one of the greatest problems, in which the IRS, whose responsibility is to determine the legitimacy of charitable donations, has mechanisms in place to detect abusive tax shelters. However, Solidaris Capital’s schemes have evaded detection by using complex structures and pre-arranged transactions.
On the same note, the SEC, which oversees investor protection, has been unable to deal with misleading filings by Solidaris. They should have known better with misleading information on appraisals and compensation structure and this has been left unchecked. It is this regulatory oversight gap that enables bad schemes such as this to continue to exist at billions of dollars to the tax payers.
How Investors Should Vet Charitable Tax Structures
Given the importance of proper due diligence when evaluating charitable tax structures, investors should exercise caution when considering such opportunities. To reduce risk, investors may consider the following due diligence steps:
Understand the Charitable Mechanism
Investors need to understand the relationship between charitable contributions and tax deductions. The fair market value of the asset should be used as the basis for the donations, and inflated valuations, if unsupported, can expose investors to risk and potential challenges. In the event of donation manipulation, the tax deduction cannot be made.
Verify the Charity’s Status and Independence
The investors are supposed to make sure that the charity to which the donation is given is a genuine 501(c)(3) organization. Most of the fraudulent efforts include charities run by the promoters. Ensure that the charity is autonomous and that its financial operations are transparent and not secretive.
Scrutinize the Appraisal Process
Non-cash donations must be appraised by a qualified individual for tax purposes, as required by the IRS. Investors should ensure that the appraiser is qualified, independent, and in compliance with IRS guidelines. When the promoter selects the same appraiser more than once it is a red flag.
Seek Independent Legal and Tax Advice
Before committing to any investment involving charitable tax deductions, investors should consult with independent professionals. The validity of the opportunity can be determined by the legal and tax experts in accordance to the financial goals of the investor and that the tax benefits are justified.
Be Skeptical of Unrealistic Tax Promises
Tax deductions that seem too high should also be a cause for concern among investors. Charitable contributions can bring about tax benefits; however, these benefits should be in proportion to the value of the donation made. Exaggerated or unclear tax benefit claims should prompt closer scrutiny.
Conclusion: Protecting Yourself from Fraudulent Charitable Tax Structures
The Solidaris Capital case illustrate why investors should carefully vet both charitable tax structures and the organizations promoting them. As much as the donations of charities come with valid tax deductions, they have to rely on valid valuations and donations. Investors must do due diligence on the charity, question appraisals, take independent counsel and beware of inflated claims. The regulatory authorities, such as the IRS and SEC, need to be more vigilant in curbing such schemes, which rob citizens of resources and erode the integrity of both the charitable industry and the tax system.
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