⛔ Breaking Update ⛔— On September 2, 2025, due to a recent enforcement action, the IRS disregarded an NGICDST structure, reclassified it as a grantor trust, and applied “civil fraud” penalties of 75% of underpayment and 25% of total taxes owed (over $1.7M in liabilities). The structure was further identified as a sham trust under IRC §6700, which may be subject to abusive tax shelter promotion and evasion penalties. — Trustees and beneficiaries cannot ignore this shift. RAPTOR is the only structured remedy to realign trusts before penalties cascade. ⚠️ We rarely address the criminal side of enforcement, but trustees (families) must understand the risk is real. Our duty is to warn before it is too late. Time is of the essence — make your decision before you receive an IRS notice. ⚠️
raptor.
“Rapid Action Protocol for Trust Overhaul & Restoration”
IRS 2023 Memorandum — Trust Compliance Starts Here:
In August 2023, the IRS issued Advice Memorandum AM-2023-006.
It clarified that:
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§643(b) defines Trust Accounting Income (TAI/FAI) — it is not a legal/lawful method to eliminate federal income tax.
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Capital gains and extraordinary dividends allocated to corpus remain taxable at the trust level.
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NGICDST arrangements marketed as “zero tax” have been classified by the IRS as abusive tax shelters subject to promoter penalties under IRC §6700.
What this means: In AM-2023-006, the IRS explained that promotional trust arrangements misusing §643(a)(3) and §643(a)(4) cannot allocate gains or dividends to corpus to avoid taxation. The memo emphasized that §643(b) only defines trust accounting income for fiduciary reporting — it does not erase tax liability. Trustees relying on outdated interpretations are now expected to review and realign their instruments under Subchapter J.
Our mission: bring NGICDST structures into compliance with the IRS’s position and Subchapter J. We review, correct, and implement lawful structures so trustees and families stay protected.
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§643.
What §643(b) Really Means:
Section 643(b) of the Internal Revenue Code defines “income” for trust accounting purposes (TAI/FAI).
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“Income” = the amount determined under the trust instrument and local law, not necessarily taxable income.
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In other words: trust accounting income (TAI) ≠ taxable income (DNI).
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Trustees must ensure their trust documents, banking practices, and accounting methods align with this framework.
The IRS has clarified: §643(b) is about accounting standards, not a legal/lawful method to eliminate federal income tax.
RAPTOR verifies whether your trust’s instrument, banking, and fiduciary practices comply with §643(b) — and provides corrective pathways if they don’t.
What §643(a)(4) Really Means:
Section 643(a)(4) of the Internal Revenue Code addresses extraordinary dividends and taxable stock dividends.
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For trusts required to distribute current income only (simple trusts), extraordinary dividends may be excluded from distributable net income (DNI) if the governing instrument or local law allocates them to corpus.
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This carve-out does not apply to complex discretionary trusts (such as NGICDSTs).
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Extraordinary dividends themselves originate at the corporate or LLC level — the trust’s role is only how those dividends are accounted for.
The IRS clarified in AM-2023-006 that using §643(a)(4) to eliminate trust-level tax in complex trust structures is a misinterpretation.
RAPTOR verifies whether your trust’s governing instrument, banking, and fiduciary practices align with the proper application of §§643(a) & (b) — and provides corrective pathways for IRC/IRM compliance.
myth.
Myth vs. Reality: Trust Income
Myth:
"IRC does not determine "Trust Income" — therefore, the IRS cannot audit the trust."
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Examples of the Difference:
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Capital gains: Often treated as principal for fiduciary accounting purposes, but still taxable under the IRC.
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“Phantom” income: Some income is taxable (e.g., bond interest, partnership allocations) but doesn’t create cash flow for beneficiaries — meaning no FAI, but still taxable income.
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*This is why trustees must follow both frameworks — state law for FAI/TAI, and the IRC for taxable income.
The Reality:
"IRC does not determine "Trust Accounting Income" (TAI/FAI) — it governs taxable income. The IRS audits trusts on that basis."
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The IRC does not determine "Fiduciary Accounting Income" (FAI/TAI) — that’s governed by state law and the trust instrument.
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The IRC does determine taxable income, and the IRS can and does audit trusts for federal tax purposes.
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Trustees must account under both systems:
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FAI/TAI → how income and expenses are allocated between income vs. principal for beneficiaries.
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Taxable Income → how the trust and/or beneficiaries are taxed under federal law.
Bottom line: Mixing up FAI with taxable income is what got NGICDSTs classified as abusive. RAPTOR ends that confusion and aligns trustees with both state law and the Internal Revenue Code.
consequences.
Civil and criminal risks of leaving NGICDSTs uncorrected:
Failure to remediate NGICDST structures that fall outside the IRS’s 2023 memorandum can create both civil and criminal exposure. Different parties may face different risks:
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Trust Authors / Promoters → Promoter penalties under IRC §6700, injunctions, and potential criminal charges.
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Attorneys → Referral to state bar, malpractice claims, aiding/abetting penalties under IRC §6701.
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Marketers & Distributors → Civil injunctions, fines, and possible criminal exposure for promotion.
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CPAs & Accountants → Preparer penalties under IRC §6694, loss of license, aiding/abetting penalties under IRC §6701.
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Trustees → Personal liability for breach of fiduciary duty, civil penalties for improper filings, and IRS/DOJ enforcement.
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Beneficiaries → Unexpected tax liability, clawback of distributions, and exposure if knowingly complicit.
Bottom line: Every party connected to a non-compliant NGICDST is at risk. RAPTOR provides the structured path out — protecting trustees, beneficiaries, and families by bringing trusts into alignment.
remedy.
Our Proprietary Lawful Administrative Remedy Process for Trust Compliance:
NGICDST structures marketed as “zero tax” have drawn scrutiny and enforcement. The IRS’s 2023 memorandum makes clear that trustees, fiduciaries, and families cannot afford to ignore compliance.
RAPTOR is the remedy. It is the structured pathway to:
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Review trusts against the IRS’s clarified position,
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Correct governing instruments, banking, and fiduciary practices,
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Restore lawful compliance under Subchapter J,
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Protect trustees, beneficiaries, and families from unnecessary risk.
Your next step is simple: begin with a RAPTOR Compliance Review and secure a corrective roadmap for your trust.