Justice Department Files Against Tax Shelter Scheme

by Mike Godfrey, for LawandTax-News.com, Washington

23 June 2003

A lawsuit was filed by the Justice Department last week against a tax shelter promotion scheme that attempted to take the principle of corporate inversion and apply it to the individual.

Corporations can limit their tax liabilities by setting up a headquarters in a low-tax jurisdiction whilst maintaining their operational facilities and employees in the United States. This is known as corporate inversion, and is an issue that has generated much hostility - fuelled by an excitable media - towards those firms which have reportedly 'shunned' America in favour of some offshore island paradise. Individuals, on the other hand, have to renounce their citizenship in order to take advantage of lower offshore taxes, as an American's income is taxed no matter where in the world they live.

The law suit, against an organisation known as the Take Back America Foundation, claims that the foundation was selling a scheme to people that claimed that they could renounce their citizenship whilst residing in the US, then by restoring citizenship, free themselves from income tax and social security obligations. The Foundation charged $1,595 plus annual fees for the privilege of supposedly putting assets out of the reach of the IRS.

According to the suit, the foundation is run by Austin Gary Cooper, and his wife, Martha. The New York Times last week quoted Cooper as announcing that: "I can prove that the government, judge and prosecutor are guilty of treason and I am not selling fraud."

Needless to say, the Justice Department begs to differ. The fact that Cooper has a history of wilfully evading federal taxes and failing to file tax returns will not strengthen his case. The Justice Department argues that the fact that Cooper claims to have studied tax law for 20 years and advertises his trusts as 'judgement proof' is enough to suggest that "the defendants are aware that the IRS will someday come to collect."

Although Mr Cooper's case forms part of a campaign by the Justice Department to shut down dubious tax shelter schemes, he can count himself a little unlucky to have been singled out again. According to the IRS's own figures, the apparent lack of resources at their disposal means that only one in five tax offenders are brought to book.

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