According to a Department of Justice press release, a Colorado dentist was sentenced to 41 months in federal prison for tax evasion after using a complex web of trusts and a private foundation to conceal over $5 million in income and fraudulently reduce his tax liability. The case stands as a stark reminder that so-called trust-based tax shelters, often marketed as legitimate planning tools, can result in serious criminal tax consequences when they are illegally used to evade taxes. If you have used trusts, nonprofits or private foundations in your tax planning and are even slightly concerned about the legality of those arrangements, it is critical to consult with an experienced tax defense attorney before the IRS begins an audit or criminal tax investigation.
If we move quickly it’s possible to bring you back into tax compliance without risking criminal tax exposure but you have to be willing to knock on the IRS’s door before they bang down yours!
Defendant Used Trust Scheme to Illegally Conceal Income and Fund a Luxurious Personal Lifestyle
Court records reveal that Ryan Ulibarri owned and operated Ulibarri Family Dentistry in Fort Collins, Colorado, beginning in 2014. Two years later, in 2016, he purchased an illegal tax shelter for $50,000 that promised to shield income from taxation by routing it through multiple trust structures. The scheme involved the use of a business trust, family trust, charitable trust, and a private family foundation. All four entities were created, controlled, and funded by Ulibarri himself.
To create the appearance that he was not the originator of the trusts, Ulibarri recruited friends to falsely sign the trust instruments as the creators. He then named himself as trustee of all the trusts and the foundation and opened bank accounts in their names. Despite knowing that Colorado law prohibits trusts from owning dental practices, Ulibarri transferred majority ownership of his dental practice to one of the trusts to further the illusion that he was no longer the true owner of the income-producing business. These steps were taken even after he had been warned by attorneys and certified public accountants that such arrangements were improper and legally questionable.
From 2016 through 2023, Ulibarri transferred more than $5 million in revenue earned from his dental practice into the bank accounts of the trusts and foundation. Although those funds were nominally held by separate legal entities, Ulibarri maintained full control over them and used the money to pay personal expenses. Prosecutors established that he used trust funds to pay his home mortgage, credit card balances, boat expenses, and even professional baseball season tickets. These payments were falsely labeled as business or charitable expenses to mask their true nature.
Ulibarri also filed false tax returns during this time, both for himself and on behalf of the entities he had created. The returns fraudulently characterized the dental practice’s income as belonging to the trusts and claimed inflated deductions for personal living expenses, which he disguised as trust-related costs or charitable contributions. The government determined that Ulibarri’s actions resulted in a tax loss of approximately $1.5 million to the United States.
Abusive Trust Arrangements Are a High-Priority Target for IRS Enforcement
While trusts and foundations can serve important and legitimate purposes in estate planning and charitable giving, they become abusive when used to conceal income, fabricate deductions, or misrepresent ownership of income-producing assets. The IRS has long identified abusive trust arrangements as a major enforcement priority, particularly when the structures are intentionally designed to obscure financial transactions and ownership.
In this case, Ulibarri’s conduct was not a result of misunderstanding or poor bookkeeping. He deliberately structured the trusts to mask his income, falsified documents, recruited others to serve as fronts, and disregarded professional warnings about the legality of his strategy. The scheme was premeditated, complex, and aimed squarely at evading income tax liability. These are precisely the factors that move a tax case from the civil enforcement realm into criminal prosecution.
The use of trusts to conceal income or personal spending is particularly risky because it often leaves a paper trail that investigators can easily trace. Bank records, transfer patterns, and ownership structures can all be analyzed with the benefit of hindsight to determine whether a taxpayer’s explanation aligns with economic reality. When those records reflect an illegal effort to shift income away from its true owner or reclassify personal expenses as deductible items, the IRS has ample tools to civilly and or criminally challenge the arrangement.
Why Proactive Legal Advice is Essential When Using Trusts in Tax Planning
Taxpayers who have engaged in trust-based planning, particularly those involving self-created trusts, nominee arrangements, or foundations they personally control, should consider a careful legal review of those structures. Even when a trust has a plausible legal basis, the way it is used can easily raise incredibly visible & detectable red flags for the IRS. For example, when trust assets are regularly used to pay personal expenses or when funds are moved in ways that obscure control or ownership, the IRS may treat the arrangement as a sham and pursue enforcement action.
For individuals who suspect that their trust structure may not withstand IRS scrutiny, the safest course is to consult with a dually licensed Civil and Criminal Tax Attorney & CPA. An experienced advisor can help evaluate the facts, determine the potential exposure, and, if necessary, develop a strategy for voluntary correction. This might involve amending past returns, dissolving improper structures, or initiating a disclosure process before an audit begins.
Once the IRS uncovers what it considers to be a pattern of fraud, the options for resolution shrink considerably. At that point, the matter often escalates to a criminal referral, where the focus shifts from recovery of tax to the imposition of criminal tax punishment.
Consult With a Tax Defense Attorney Before the IRS Investigates
The sentence handed down to Ryan Ulibarri should serve as a warning to other taxpayers who are using or considering similar arrangements. While the promise of reduced tax liability through complex structures may be appealing, those promises can quickly unravel when examined by federal & state tax authorities. The result, as in Ulibarri’s case, can be prison time, restitution, and permanent damage to one’s professional and personal reputation.
If you have used a tax shelter involving trusts, foundations, or similar entities and are unsure whether your returns accurately reflect your financial reality, do not wait for the IRS to initiate contact. A proactive approach taken in consultation with a skilled and seasoned tax defense attorney can significantly reduce your legal risk and may allow you to resolve the matter through civil channels rather than criminal tax investigations or proceedings.
