DOJ Tax Budget Request - The Criminal Parts #6 - Prosecuting Abusive Promotions

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Prosecuting Abusive Promotions

The Division is actively engaged in prosecuting the promotion or use of fraudulent tax shelters and other schemes to evade taxes and hide assets. The number of taxpayers who use these bogus schemes to improperly reduce, or totally evade, their federal income tax liabilities has increased [*17] significantly in recent years. Some schemes involve the use of domestic or foreign trusts to evade taxes. Promoters of these schemes often use the internet to aggressively market these trusts to the public, and rely upon strained, if not demonstrably false, interpretations of the tax laws. Employing what they often call “asset protection trusts” (ostensibly designed to guard an individual’s assets from legitimate creditors, including the IRS), these promoters are in fact assisting taxpayers to fraudulently assign income and conceal ownership of income-producing assets in order to evade paying their taxes.

In October 2009, in United States v. Roderick Prescott (D. Ore.) Roderick Prescott, a former principal of National Trust Services (NTS) was sentenced to 30 months in prison for pleaded tax evasion. Prescott and his former business partner Leroy Fritts earned significant income from the nationwide promotion and sale of abusive trusts through NTS. Prescott and Fritts deposited approximately $3.5 million into various bank accounts through the sale of such trusts. They also earned income from recruiting clients of NTS to invest in Fountainhead Global Trust (FGT), a purported offshore investment that promised returns as high as 50 percent per year. FGT was a Ponzi scheme which collected approximately $20 million in investors’ funds from 1995 through 1999. FGT transferred some of the money to an offshore account in the Cayman Islands at the Bank of Bermuda, ostensibly to be invested in high-interest debt through a Florida entity called “Cash 4 Titles.” Prescott and Fritts then funneled part of the money in the account back to themselves. Prescott and Fritts used an array of purported trusts and related bank accounts, including numerous offshore bank accounts at the Bank of Bermuda in the Cayman Islands, to conceal their income from the IRS. Prescott and Fritts also used false or fictitious taxpayer identification numbers and offshore credit cards in fake names issued to them by the Bank of Bermuda in the Cayman Islands.

In May 2008, in United States v. Michael A. Vallone, et al. (N.D. Ill.), a jury convicted six defendants of a $60 million tax fraud conspiracy for participating in a scheme to market and sell to wealthy taxpayers sham domestic and foreign trusts through “The Aegis Company.” The Chicago-based investigation has resulted in nationwide convictions of more than 30 defendants, with charges pending against approximately 30 other defendants around the country. All six defendants were sentenced to at least 10 years in prison. In October 2009, Vallone was sentenced to more than 18 years in prison. In March 2009, co-defendant Edward B. Bartoli was sentenced to 10 years in prison.