Justice Department Sues San Francisco Enrolled Agent to Bar Promotion of Abusive Tax Avoidance Schemes and From Preparing Tax Returns for Others
The United States filed a complaint to bar a San Francisco enrolled agent and tax return preparer from implementing, facilitating and promoting allegedly abusive tax shelters and tax avoidance schemes, the Justice Department announced today.
According to the complaint, which was filed in the U.S. District Court for the Northern District of California, one of the abusive tax avoidance schemes that Timothy Conn Vu promoted was a scheme that illegally avoided corporate income taxes on gains received from the sale of corporate assets, a so-called intermediary transaction tax shelter. Additionally, Vu promoted a scheme that illegally avoided taxes on the gains from selling transferrable state tax credits (the State Tax Credit tax shelter), which real estate project owners typically sell to raise money to develop real estate projects, according to the suit.
According to the complaint, in many instances Vu served as the sole officer, director and/or manager of the five companies that were used to carry out these schemes and he signed many of the documents on behalf of those companies.
In one version of the intermediary transaction described in the complaint, a company that Vu managed allegedly bought all of the stock of a closely held corporation shortly after that corporation had sold its assets to a third party. The asset sale generated capital gains tax. The complaint alleges that, once it owned the stock, the company that Vu managed allegedly offset the tax liability from the asset sale using a purported bad debt deduction based on bogus losses from a distressed asset debt (DAD) and/or distressed asset trust (DAT) tax shelter.
According to the suit, Vu, as an officer of the companies perpetrating these schemes, also signed and then filed with the Internal Revenue Service (IRS) many of the corporate income tax returns that claimed bogus losses to offset the income on which the corporations should have paid substantial federal taxes.
The complaint alleges that Vu’s participation in these abusive tax schemes has generated more than $515 million in bogus tax deductions that have led to federal income tax deficiencies of at least $129 million. For his role in the abusive transactions, Vu allegedly earned $3 million in compensation, according to the complaint. The lawsuit seeks to stop Vu from promoting these schemes in the future and to permanently bar him from preparing tax returns for others.
The promotion of tax schemes is one of the IRS’ Dirty Dozen Tax Scams for 2015. The IRS has some tips on its website for choosing a tax preparer, and has launched a free directory of federal tax preparers. In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers and tax scheme promoters. Information about these cases is available on the Justice Department’s website. An alphabetical listing of persons enjoined from preparing returns and promoting tax schemes can be found on this page. If you believe that one of the enjoined persons or businesses may be violating an injunction, please contact the Tax Division with details.