Department of Justice Seal Department of Justice
FRIDAY, JUNE 28, 2002
(202) 514-2007
TDD (202) 514-1888


WASHINGTON, D.C. The Justice Department filed suit today in Denver against Colorado Mufflers Unlimited, Inc., of Northglenn, Colo. According to the suit, the company, which does business as Exhaust Pros, filed false claims for refund with the Internal Revenue Service for 1997 and 1998.

Colorado Mufflers sought a refund of payroll taxes it had paid by asserting the so-called 861 argument. That argument says that only income from foreign sources is subject to U.S. tax, and not amounts U.S. employers pay to U.S. citizens. The Internal Revenue Service mistakenly paid the refund, and the suit filed today seeks to recover that refund plus interest, nearly $90,000 in all.

"The 861 argument is nonsense. People who file false claims for refund are breaking the law and will be held accountable for their actions," said Eileen J. O'Connor, Assistant Attorney General for the Justice Department's Tax Division.

In a related case, the Department previously filed suit in federal court in Harrisburg, Pa. against Thurston Bell. Bell is the founder of the National Institute for Taxation Education (NITE). According to the papers filed in that case, Bell uses NITE's Web site to promote his corrupt 861 scheme to potential clients. The Web site claims that the tax refunds Colorado Mufflers received were the result of "information, data and training" that is made available exclusively through NITE membership. Contrary to that assertion, however, the refunds were merely the result of an administrative error which today's lawsuit seeks to reverse.

According to the government's filings against Bell, he charges customers $195 for membership in NITE. The suit against Bell seeks to bar him from promoting his corrupt 861 scheme and to require him to remove from the NITE website all materials promoting tax evasion.

Bell's case is one of four cases the Justice Department has filed recently to stop the promotion of the foreign-source income scheme. Earlier this month, a federal court in Tampa banned Douglas P. Rosile, Sr., a Venice, Fla.-based former accountant, from preparing tax returns and from promoting the foreign-source income argument. Last month the federal court in Tampa ordered David Bosset to stop preparing tax returns and promoting fraudulent tax schemes based on the Section 861 argument, which it called "absurd on its face." In January, the Department obtained an injunction against Harold E. "Hal" Hearn, an Atlanta-based CPA, prohibiting him from preparing returns based on, or promoting, the foreign-source income argument.

Tax evasion schemes cost United States taxpayers billions of dollars a year. According to a report the General Accounting Office issued in May 2002, however, IRS and Justice Department efforts have led to increasing numbers of convictions for promoters and individuals involved in tax fraud schemes.