FOR IMMEDIATE RELEASE |
WEDNESDAY, APRIL 14, 2004
TDD (202) 514-1888
JUSTICE DEPARTMENT SEEKS TO BAR ALLEGED TAX SCAMS
Sham “Websites” and Home Businesses Allegedly Sold to 100,000 Customers for Obtaining Improper Tax Benefits-Bilking Treasury of an Estimated $324 Million
WASHINGTON, D.C. - The Justice Department announced today that it has filed a civil lawsuit asking a federal court in Las Vegas to issue a temporary restraining order against a telemarketing firm, the Las Vegas-based National Audit Defense Network, known as NADN. Court papers allege that NADN has sold fraudulent tax schemes-including phony website businesses-to an estimated 100,000 customers, costing the Federal Treasury an estimated $324 million to date. Also named in the suit, filed in U.S. District Court, were three other companies-ALR, Inc. (operating under the name Success Matrix Group), Free Trade Enterprises (operating under the name Oryan Management), and ADA Adventure-and thirteen individuals. The suit also asks the court to permanently bar NADN and four of the individual defendants from preparing federal income tax returns for others, and to order the defendants to turn over their customer lists.
In voluminous papers filed in the case, the Justice Department alleges that NADN-a telemarketer that also advertises on the radio and Internet-runs a “tax-scam boiler room” that sells bogus “websites,” home-based businesses and “incorporation” packages designed to help customers claim improper tax deductions and credits.
The “websites” are allegedly designed to help customers claim to have a business with a website, and then improperly claim tax deductions and credits for supposedly “modifying” the website-purportedly to comply with the Americans with Disabilities Act (ADA). According to court papers, NADN charges customers $2,495 to make sham website modifications, but also adds a sham $7,980 promissory note as part of the ostensible purchase price to artificially raise the total cost to $10,475. NADN allegedly tells prospective purchasers that they can use that inflated cost to claim a $5,000 ADA income-tax credit and a $5,475 business tax deduction, thereby reducing their taxes by more than double the $2,495 they paid for the “modifications.”
In reality, according to court papers, purchasers never received their own website or their own ADA modifications. Instead, in what court papers say is “one of the oldest swindles in the book,” NADN allegedly sold one website 17,000 times, and modified it only once while charging each purchaser for supposed separate modifications. Moreover, the Justice Department alleges, the supposed ADA modifications were largely useless to disabled computer users, making the scheme “a cruel hoax.” The IRS recently included ADA tax-credit schemes on its list of “dirty dozen” tax schemes, found at: http://www.irs.gov/newsroom/article/o,,id=120803,00.html.
“People ought to use their common sense: the fact that a scheme is advertised on the radio or Internet, or sold by a large company, doesn’t make it legitimate,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Justice Department is striving to bring people who sell fraudulent tax schemes the response they deserve: injunctions, penalties, and-where warranted-criminal prosecutions.”
“The scale of this scheme is truly staggering,” said IRS Commissioner Mark W. Everson. “As we've said time and time again, people shouldn't fall prey to schemes and scams. No matter how slick the sales pitch, taxpayers should be wary of anyone promising to eliminate their taxes. There is no secret way to escape paying taxes, either through a home-based business or any other scam.”
The suit also alleges that NADN sells a sham home-business tax scam, telling purchasers that, by starting purported home-based businesses they can deduct the cost of such non-deductible personal expenses as meals, travel, and housing. Home-based business scams are also on the IRS Dirty Dozen list. More information on these scams is available at: http://www.irs.gov/pub/irs-news/ir-02-13.pdf. Court papers also allege that NADN misleads prospective customers about the tax savings that can be obtained by having NADN help the customers set up Nevada corporations.
According to the Justice Department complaint, California-based Free Trade Enterprises, d/b/a Oryan Management, originated the website-based ADA tax scam in 2000. Oryan and four of the individual defendants have agreed, in a stipulated proposed order filed with the complaint, to be enjoined. The agreed permanent injunction would bar Oryan and the four individuals from selling the website scheme or any other arrangement that misrepresents the tax benefits from using the arrangement.
The thirteen individuals named in the suit are Las Vegas-area residents Robert Bennington, Weston J. Coolidge, Alan L. Rodrigues, Adam Mangabang, Lee Panelli, Christine Reid, Jeffrey Klingenberg, Rich Klingenberg, and Marie Orie, as well as California residents Daniel W. Porter of Chino, Robert Goetsch of Hayward, Michelle M. Hernandez of Upland, and Joseph Prokop of Mt. Baldy.
This case is part of the Justice Department’s initiative to stop the spread of fraudulent tax schemes. The Department has previously brought injunction suits against other alleged home-business tax-scheme promoters. Information on these suits can be found at:
More information about the Justice Department’s Tax Division is available at http://www.usdoj.gov/tax/index.html.