WASHINGTON, D.C.-Five persons associated with Innovative Financial Consultants (IFC) were convicted of tax crimes in connection with the promotion of a tax evasion scheme utilizing abusive trusts called “pure trust organizations,” the Justice Department and Internal Revenue Service (IRS) announced today. Today’s convictions resulted after a six-week trial that was prosecuted by attorneys in the Justice Department’s Tax Division.
IFC, a consulting company based in Tempe, Arizona, advanced its scheme through several avenues, including domestic and offshore seminars; a promotional website; and an interactive telephone conference line. As a result of the prosecution, the following individuals were convicted:
Ensign and Priest were acquitted on other charges and the jury was not able to reach a verdict as to the conspiracy charge against McElhinney.
“People in the business of encouraging others to evade their tax obligations and to hide income and assets from the IRS can expect to be prosecuted and convicted,” said Assistant Attorney General Eileen J. O’Connor of the Justice Department’s Tax Division. “Attorneys with the Justice Department’s Tax Division are working tirelessly to investigate and prosecute the promotion and use of tax evasion schemes.”
According to evidence the government presented at trial, from 1996 through early 2003 the defendants received $4.7 million dollars in fees from their sale of 2,000 “pure trusts,” falsely claiming that their customers could lawfully avoid income taxes by placing their income and assets into either an “onshore” or “offshore” trust package. Evidence introduced at trial showed that IFC’s trusts enabled customers to retain the use, control, and dominion of any income and assets they placed into their respective trusts, while making it difficult for the IRS to track the true ownership of assets or income assigned to the “trusts” or deposited into trust bank accounts. The evidence revealed that the defendants charged IFC customers approximately $10,500 for the offshore trust package and approximately $4,154 for the onshore trust package. Trial evidence showed that IFC was a prominent vendor with the Institute of Global Prosperity (IGP). At offshore seminars hosted by IGP, defendant Dennis Poseley promoted IFC’s trust schemes to thousands of people.
“The IRS has ramped up its enforcement efforts, particularly in the area of offshore and domestic trusts established for the purpose of escaping tax obligations,” said Nancy Jardini, IRS Chief, Criminal Investigation. “We will continue to pursue promoters of this unlawful activity to assure the taxpaying public that when they pay their taxes, they can be confident that neighbors and business competitors are doing the same.”
The defendants were also convicted of willful failure to file tax returns reporting the substantial amount of gross income they received from the sale of their trust schemes. Defendant Dennis Poseley was convicted of five counts of willful failure to file tax returns for the 1997-2001 tax years. Patricia Ensign was convicted of two counts of willful failure to file tax returns for the 2000-2001 tax years. Defendants David Trepas and Rachel McElhinney were convicted of four counts of willful failure to file tax returns for the 1998-2001 tax years. Defendant Keith Priest was convicted of two counts of willful failure to file tax returns for the 2000-2001 tax years.
“I applaud the efforts of these Department of Justice attorneys. By working diligently on prosecuting these types of complicated tax cases, they allow us to dedicate our resources here in Arizona to prosecute more violent crimes,” said Paul K. Charlton, U.S. Attorney for the District of Arizona. “This type of relationship allows more cases to be brought to justice in our district.”
At trial, the government called approximately 35 witnesses, including an undercover IRS investigator and introduced over 300 exhibits. Three cooperating co-defendants who earlier pleaded guilty to the conspiracy charge John Poseley, Mark Poseley, and Jeffrey Lewis, also testified, describing their respective roles in the sale and promotion of the trust schemes.
On the conspiracy count, each defendant faces a maximum sentence of five years imprisonment and/or a $250,000 fine. On each count of willful failure to file an individual income tax return, the defendants face a maximum sentence of 12 months and/or a $100,000 fine.
“This verdict reaffirms that establishing trusts for the purpose of evading taxes is a crime,” said Debra King, Special Agent in Charge, IRS Criminal Investigation, Field Office in Phoenix. “This field office will continue to actively pursue investigations on those individuals selling or using abusive trusts.”
This case was tried by Department of Justice Tax Division attorneys Larry J. Wszalek and Mark T. Odulio, and investigated by agents of the IRS Criminal Investigation Division.