Department of Justice Seal Department of Justice
FOR IMMEDIATE RELEASE
THURSDAY, MARCH 11, 2004
WWW.USDOJ.GOV
TAX
(202) 514-2008
TDD (202) 514-1888

FEDERAL COURT HALTS TAX SCAM INVOLVING SHAM TRUSTS

Promoter Ordered to Give Customer List to Justice Department

WASHINGTON, D.C. -

The Justice Department today announced that a federal court has granted a preliminary injunction ordering Tacoma, Washington resident David Carroll Stephenson to stop promoting a tax scam in which customers paid $2,500 to $8,000 to use sham trusts and corporations to evade federal income taxes. The court found that Stephenson, to promote the scheme, falsely claimed to be a lawyer. Also barred by the court order are several businesses operated by Stephenson: American Business Estate & Tax Planning Service; Advocate and Associates, Inc.; Advocate NW & Co., Inc.; A-1 Credit & Co.; the American Business Law, Inc. and American Business & Estate Planning. Today’s court order states that Stephenson’s promotion has cost the federal treasury more than $43 million in lost tax revenue. The court order also states that Stephenson’s customers have suffered substantial harm, “as they too are in violation of internal revenue laws.”

“This spring, as millions of Americans engage in the annual ritual of complying with the tax laws, some people are cynically helping others to evade them,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Department of Justice is working to halt the promotion of tax fraud schemes and to help the IRS identify those who use them.”

The court found that the defendants have promoted an abusive tax scheme that assists customers in evading federal tax liabilities and IRS collection efforts through the fraudulent use of trusts and business entities. The court found that defendants instruct customers to transfer their personal assets into four different trusts, each intended to perform a unique function within the scheme, with the ultimate goal of evading taxes on income and wages and hiding assets from IRS collection efforts. The court also referred to numerous misrepresentations and false claims made by Stephenson in marketing his tax schemes, such as:

  • Trust income is not subject to tax;
  • Filing tax returns is voluntary;
  • Only those individuals or businesses that voluntarily disclose personal information on a tax return are subject to tax;
  • Participants’ trusts cannot be compelled to turn over books and records to the IRS or to file federal tax returns;
  • Property held by contract trust is exempt from IRS seizure;
  • Only licensed business organizations have employees for employment tax purposes, all other businesses have independent contractors; and
  • Income to a trust can be used to purchase assets without first being subject to tax.
The court order said that as of March 2000, Stephenson had 472 customers in 22 states and in Canada. Stephenson was ordered to give the Justice Department, within ten days, the names, addresses, and social security numbers of all customers who purchased trusts or corporations from him, or to whom he gave any tax advice. The order also requires Stephenson to notify his customers of the injunction and to post a copy of it prominently in the front window of his office on 27th Street in Tacoma. Information about this case is available at http://www.usdoj.gov/tax/txdv03720.htm. Additionally, more information about the Justice Department’s efforts against tax-scam promoters can be found at http://www.usdoj.gov/tax/taxpress2004.htm. Further, information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax.
Related Documents:

  United States v.
David C. Stephenson

Preliminary Injunction

(PDF documents)


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