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FOOL'S GOLD AND CHICKEN SHELTER

February 22, 2008

The tax authorities may move slowly to shut down tax scams, but when they do move, it can be impressive. The Justice Department moved to shut down two tax-shelter organizers yesterday for what appear to be pretty brazen abusive tax shelters.

There's gold in them there football players

The New York Times reports on one of these schemes, a bogus gold-mine tax shelter:

The Justice Department filed two lawsuits on Thursday in a move against what it said was a fraudulent gold-mining scheme sold to dozens of wealthy investors, including seven current or former National Football League players.
Prosecutors say the promoters of the investment, known as Midas, for mining interest development action strategy, promised investors a return of at least 34 percent if they invested refunds they got after filing amended tax returns that claimed bogus deductions related to supposed gold-mining expenses in Colorado, Arizona and elsewhere.

Sure, just about every NFL player has been to college, but not many of them were finance or accounting majors.

Liquid Eggs

The other tax-shelter action yesterday went after two former Grant Thornton partners who apparently were run out of that national accounting firm and went into the tax-shelter business on their own in the Kansas City area. One of them became known by the not-very-manly nickname "Dr. Poof" for his alleged ability to make taxes "go poof." The Kansas City Star reports:

Two area tax advisers used sham companies and nonexistent chicken farms to shelter their clients’ income from hundreds of millions in taxes, government lawyers alleged Thursday.
In separate but related civil suits filed in federal court, the IRS said that Allen R. Davison of Overland Park and A. Blair Stover Jr. of Platte City and Beverly Hills, Calif., sold numerous fraudulent tax-avoidance schemes to wealthy investors. The agency’s lawyers asked a federal judge in Kansas City to permanently bar the men from giving tax advice or representing clients before the IRS.

The federal complaint alleges that the promoters used a menu of scams, including:

-Claiming disabled-access tax credits without actually incurring any expenses for improving disabled access.

- Deducting bogus "management fees" to Roth IRA-owned corporations.

- Inflating depreciation deductions through bogus asset basis.

The most picturesque item in their alleged toolkit is phoney chicken farms. The complaint says that non-farmers - say, insurance brokers - would write a big check at year-end to allegedly buy a flock of layers, and a tax deduction Cash-basis "dirty boots" farmers can do this, but an insurance broker in Mission Hills probably isn't spending much time on the chicken farm. The insurance broker-farmer would get the check back the following year, including it in income, and then write a bigger check the subsequent December to keep the deduction going.

The Kansas City Star report quotes one participant:

“I just think somebody doesn’t have their facts here,” she said. “Because I know that some of the investments that Al is in, and has involved other people in, are in chicken farming and they have literal chicken farms that produce liquid eggs for McDonald’s. I know about the business and it’s extremely legitimate.”

Liquid eggs? I bet they don't hard-boil very well.

Links to Justice Department Press Releases:

TAX PREPARERS FROM WASHINGTON, D.C. & TEXAS SUED FOR ALLEGEDLY PROMOTING GOLD MINING TAX SCAM

U.S. SUES TWO MEN TO BLOCK ALLEGED TAX FRAUD SCHEMES SAID TO HAVE COST U.S. TREASURY HUNDREDS OF MILLIONS

The linked items also have links to the actual complaints filed in federal court.

Tags: tax administration.tax shelters.