THREE MEN BARED FROM PROMOTING ABUSIVE TAX SHELTERS

The following case is from the Department of Justice website:

"Tuesday, July 12, 2011
Federal Court Bars Three Men from Promoting “Intermediary Transaction” Tax Shelter

Two Southern California Lawyers and a Kentucky Financial Professional Allegedly Caused More Than $112 Million in Bogus Tax Deductions
WASHINGTON – A federal court has permanently barred Charles Klink, Caleb Grodsky and Steven Block from promoting abusive tax shelters known as “intermediary transactions” and “distressed asset trusts,” the Justice Department announced today. The civil injunction orders, to which the three men consented without admitting to the allegations against them, were entered by Judge Joseph Irenas of the U.S. District Court for the District of New Jersey. The court orders require the defendants to give the government a list of all persons who participated in any tax plan or arrangement that they promoted since Jan. 1, 2000.

According to the government complaint , Klink and Grodsky, who are both attorneys in Southern California, and Block, who resides in Louisville, Ky., and has worked in the financial services industry for more than two decades, received millions of dollars from customers across the country for helping them dispose of corporate assets without paying federal corporate income taxes on the resulting capital gain income. The complaint alleges that the three men used an intricate web of trusts and corporations to act as intermediaries between their customers, who owned closely held corporations, and buyers who wanted to purchase the corporations’ assets.

The complaint alleges that the defendants purchased all of the stock in a customer’s corporation shortly before or after the asset sale. They then allegedly falsely told the customer that, following defendants’ purchase of the corporation, the defendants would restructure the corporation into a profitable new business and have it pay the corporation’s federal income taxes resulting from the asset sale. However, according to the complaint, rather than pay the taxes owed after the asset sale, the defendants allegedly claimed deductions for sham fees and bogus bad debt write-offs generated from distressed-asset-trust tax shelters to offset most or all of the capital gains. The defendants also allegedly took steps to siphon off the corporation’s assets, leaving it with no funds to pay any taxes due once the Internal Revenue Service learned of the scheme and assessed taxes.

The complaint against Klink, Grodsky and Block alleges that they have caused the corporations they acquired to deduct improperly more than $112 million of distressed consumer receivables. The government estimates that the tax loss resulting from their promotion of the tax schemes at issue in this case exceeds $40 million.

In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against promoters of tax schemes and preparers of fraudulent tax returns.Information about these cases is available on the Justice Department website."