November 7, 08

NEWS / Arizona Federal Court Bars Tax Fraud Scheme

Remaining Three Defendants Barred From Promoting “Pure Trust” Scheme That Cost the Treasury an Estimated $8 Million

WASHINGTON - A federal court in Arizona has permanently barred Dennis O. Poseley, Patricia Ann Ensign and Rachel McElhinney from selling tax fraud schemes, the Justice Department announced today.

The complaint in the civil injunction case alleged that the defendants, through a business called Innovative Financial Consultants (IFC), falsely advised customers that they could use sham trusts to avoid federal income taxes. Permanent injunctions previously were entered against the five other defendants: John F. Poseley, Mark D. Poseley, Jeffrey G. Lewis, Frank Williams and David Trepas.

Defendants John Poseley, Mark Poseley, Jeffrey Lewis, and Frank Williams previously pleaded guilty to criminal charges related to their promotion and sale of this scheme. The remaining defendants were convicted and sentenced to prison on these charges. The permanent injunction ensures that the those defendants who have been released from prison cannot promote tax-fraud schemes, and that Dennis Poseley, who was sentenced to seven years in prison in 2006, cannot resume his promotion of tax fraud schemes after his release.

According to the complaint, the defendants received $4.7 million in fees from their sale of 2,000 so-called "pure trusts," falsely telling customers they could lawfully avoid income taxes by placing their income and assets into either an "onshore" or "offshore" trust package. The defendants allegedly charged IFC customers between $4,154 and $10,500 for setting up the sham trusts. In the injunction order, the court noted that the Internal Revenue Service (IRS) conservatively estimated a loss of more than $8.8 million to the U.S. Treasury from the defendants’ actions.

The court rejected the tax defier arguments presented by Dennis Poseley and Patricia Ensign, including that the Paperwork Reduction Act somehow invalidates the IRS’s authority. The court further noted that the fraudulent "pure trusts" that the defendants promoted "are fictitious legal devices that have long been used as part of sales pitches to an unsuspecting public."

"The pure trust scheme promoted by the defendants has been universally rejected as a fraud. The Justice Department will continue to use its civil and criminal enforcement tools to shut down peddlers of tax-fraud schemes," said Nathan J. Hochman, Assistant Attorney General for the Justice Department’s Tax Division. "The National Tax Defier Initiative has enabled the government to target and stop individuals like these defendants who falsely claim that tax defier nonsense justifies their scams."

Assistant Attorney General Hochman thanked Justice Department attorney Daniel Applegate, who handled the injunction case, as well as the agents of the IRS’s Small Business/Self Employed Division and Criminal Investigation Division, whose investigative work aided the Justice Department.

Since 2001, the Justice Department’s Tax Division has obtained injunctions against more than 360 tax-return preparers and tax-fraud promoters. Information about these cases, as well as the National Tax Defier Initiative, is available on the Justice Department Web site, as is information about the Justice Department’s Tax Division.
http://www.usdoj.gov/opa/pr/2008/November/08-tax-985.html

Tags: criminal investigation,