October 27, 09

NEWS / Utah-Based Tax Shelter Operators Plead Guilty in $200 Million Dollar Tax Fraud

WASHINGTON – David Plummer, Spencer Plummer and Terry Green, operators of a fraudulent tax shelter that offered tax benefits in connection with the leasing of thoroughbred mares, pleaded guilty today to a criminal information charging them with one count of conspiracy to defraud the United States, the Justice Department and the Internal Revenue Service (IRS) announced.

According to the criminal information and statements made in court, the defendants called their fraudulent tax product the Mare Lease Program and marketed it through a company called ClassicStar LLC. David Plummer created the Mare Lease Program and oversaw the program at ClassicStar. Spencer Plummer assisted David Plummer in the operation of the Mare Lease Program. Terry Green was a Certified Public Accountant and assisted investors in the Mare Lease Program in preparing and filing income tax returns on which they reported fraudulent deductions. Green also assisted customers in their IRS audits by creating false and back-dated documents and presenting them to IRS auditors. The investors in the Mare Lease Program filed tax returns with the IRS claiming false tax deductions of over $500 million, which resulted in a tax loss to the Government of over $200 million.

According to the criminal information and statements made in court, ClassicStar’s Mare Lease Program purported to offer wealthy individuals the opportunity to invest in thoroughbred horse breeding. According to Mare Lease Program promotional materials, investors leased the reproductive capacity of specific thoroughbred mares. If the mare had a foal during the time that the investor held the lease, the investor would own the foal. Mare Lease Program promoters told investors that they could take deductions on their federal income tax returns for the losses generated by the thoroughbred horse breeding operation. These deductions reduced or eliminated the investors’ taxes, and many investors received tax refunds, including refunds for years prior to their investments. These deductions were fraudulent because, among other reasons, the Mare Lease Program used fraudulent loans to finance investors’ participation, and the program induced investors to lease thoroughbred mares that the operators of the program knew ClassicStar could not provide.

According to the criminal information and statements made in court, most investors financed at least 50 percent of their investments in the Mare Lease Program through loans from the National Equine Lending Company (NELC), a purportedly independent financial institution. In fact, NELC was controlled by ClassicStar. ClassicStar’s operators claimed that NELC would transfer funds to ClassicStar on behalf of an investor to finance his or her investment in the Mare Lease Program. In reality, NELC had no funds of its own and would instead accept money from ClassicStar. Typically, ClassicStar transferred insufficient funds to NELC to finance an investor’s entire loan. To conceal the lack of funds, NELC and ClassicStar repeatedly transferred the same funds between their bank accounts to create a paper trail that gave the appearance that the investor’s loan was fully funded by NELC. At the conclusion of the investor’s participation in the Mare Lease Program, the investor, often having made no payments on the supposed loan, had the loan extinguished through fictitious trades involving an entity that purportedly owned interests in coal bed methane gas wells.

According to the criminal information and statements made in court, in addition to the fraudulent lending arrangements of the Mare Lease Program, ClassicStar sold Mare Lease Program investments knowing that it lacked sufficient thoroughbred mares to fulfill its contractual obligations to the investors. To justify the deductions that the investors claimed on their income tax returns, ClassicStar substituted less-valuable quarter horse mares for the thoroughbred mares that they had promised.

"U.S. taxpayers who honestly report their income and pay their taxes can rest assured that those who promote fraudulent schemes that illegally conceal assets and income will be investigated and prosecuted by the IRS and Department of Justice," said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division.

"Tax crimes hurt everyone, by depriving the Treasury of funds needed for important government programs. This nationwide fraudulent scheme is by far the largest criminal tax case in the history of Oregon, and we are grateful for the assistance of the Internal Revenue Service in the investigation of this case," said Acting U.S. Attorney Robinson.

The case was investigated by special agents of the Internal Revenue Service - Criminal Investigation and is being prosecuted by Assistant U.S. Attorney and Senior Litigation Counsel Allan M. Garten and Department of Justice Tax Division Trial Attorney Jay Nanavati.

"The IRS uses all its investigative tools to uncover abusive tax schemes designed to create fraudulent deductions for investors," said Eileen Mayer, Chief, IRS Criminal Investigation. "Investment schemes that seem too good to be true should be a signal to investors to stay clear. The IRS is actively pursuing promoters as well as investors who knowingly participate in these types of tax avoidance schemes."

http://www.justice.gov/opa/pr/2009/October/09-tax-1155.html

Tags: document, criminal investigation,