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WEB SITES FOR SALE: THE MORE YOU PAY, THE MORE YOU DEDUCT?

May 15, 2008

The retail cattle feeding tax shelters of the 1970s used a simple scheme to generate deductions: Sell a cow worth $500 for $5,000 (heck, $10,000 - who cares?) to the tax shelter - but accept a non-recourse note from the shelter as payment. The shelter would then depreciate the $10,000 "cost" of the the cow, but with no intention of ever paying off the note.

Now comes word from Virginia of a new economy twist on this old scheme involving Virginia CPA John T. Hoang:

The complaint alleged that Hoang, through his company Tax Smart Technology Services, sold customers Web sites worth almost nothing. But the sales contracts between Tax Smart and customers falsely stated that the Web sites were worth tens of thousands, hundreds of thousands or even millions of dollars. Hoang then allegedly prepared customers’ federal income tax returns, improperly using the false values to claim large depreciation deductions. The lawsuit asserts that Hoang used offsetting sham promissory notes to create the appearance of sales of valuable assets, while in reality customers paid Hoang a small sum and Hoang then provided customers a worthless Web site and a large tax deduction. The government complaint estimates that the harm from Hoang’s misconduct exceeds $6.1 million.

Mr. Hoang has now consented to a permanent injunction barring him from preparing returns or promoting this scheme.

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