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XELENT ADVENTURES OF XELAN

November 05, 2004

A reader points to this New York Times story about the IRS freezing $500 million of assets belonging to 4,000 + doctors and dentists. The assets were in "abusive tax shelters" run by Xelan, a San Diego company.

   About 4,000 doctors and dentists 
   across the nation bought tax-reduction
   plans in recent years from the company, 
   Xelan, evading $420 million in taxes, 
   not including interest and penalties, 
   a statement from the Justice 
   Department asserted.

The story says Xelan is under investigation for operating a bogus charity....

   One focus of Justice Department 
   scrutiny is the Xelan Foundation, 
   which was set up as a charity that 
   allows the donors - and not the 
   charity - to decide how their 
   contributions are to be used. 
   The government contends that the 
   foundation, which is registered with 
   the I.R.S., operated as an abusive 
   tax shelter. The Justice Department 
   said it found 29 instances of the 
   foundation's accepting pretax 
   contributions from doctors and 
   dentists, who then used the money for 
   their children's college tuition.

...and a bogus disability insurer:

   Xelan told doctors that they could put
   up to 100 percent of their income 
   tax-free into the supplemental 
   disability plan. Legitimate payments 
   for insurance are tax-deductible. 
   Xelan told the doctors that their 
   contributions were tax-free for seven 
   years, after which they would owe 
   taxes on the principal and gains.

   The I.R.S. maintains that the plan was 
   not insurance but a taxable 
   deferred-compensation program. The 
   $505 million in Vanguard accounts was 
   from the insurance plan, a Justice 
   Department lawyer said.

The moral? The old one - if it sounds too good to be true, in probably is. And don't trust companies that start with "X," perhaps.

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