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EVERY OLD SCAM IS NEW AGAIN

November 30, 2007

The Justice Department has sued to shut down an alleged tax fraud scam in Ohio. The scam sounds familiar. From the Justice Department press release:

The lawsuit alleges that the defendants’ customers pay inflated prices for participating in purported oil and gas joint ventures. Defendants allegedly artificially inflate the prices by having customers use sham notes to pay for most of the stated purchase price. Customers then allegedly claim tax deductions for intangible drilling costs based on the inflated price. In some instances, the suit alleges, the defendants sold the same intangible drilling deductions to more than one customer. According to the complaint the defendants have more than 200 customers across the country, with most being from central Ohio.

Well, that's one way of promoting energy independence; too bad a well that's been sold twice doesn't produce twice as much oil.

The basic scam is old. By selling an asset at an artifically high price for a note you nobody expects to ever be paid, the deal generates inflated deductions. It's much like the "Hoyt" cattle shelters of the 1970s and early 1980s, down to the multiple sales of the same asset - but this time it's oil wells, not cows. Some of the Hoyt investors are still in court 15 or 20 years after their investment. The investors in the Ohio scheme may have a lifetime of IRS fun in store.

Taxable Talk has more.

Tags: scams.tax shelters.

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