US Trust Promoters Jailed For Tax Fraud

by Mike Godfrey, Tax-News.com, Washington

03 July 2006

Five people have been sentenced to lengthy prison terms for promoting a tax evasion scheme using so-called "pure trust organizations," the Justice Department and Internal Revenue Service (IRS) announced last week.

On Sept. 8, 2005, after a six-week trial, a jury convicted the defendants of tax crimes in connection with their promotion of a tax evasion scheme through Innovative Financial Consultants (IFC), a consulting company based in Tempe, Arizona. The defendants advanced their scheme through several avenues, including domestic and offshore seminars, a promotional website, and an interactive telephone conference line.

According to evidence the government presented at trial, from 1996 through early 2003, the defendants received $4.7 million in fees from their sale of 2,000 "pure trusts," falsely claiming that their customers could lawfully avoid income taxes by placing their income and assets into a trust.

Evidence introduced at trial showed that IFC's trusts enabled customers to retain the use and control of any income and assets they placed into their respective trusts, while making it difficult for the IRS to track the true ownership of assets or income assigned to the 'trusts.' Trial evidence also showed that IFC was a prominent vendor with the 'Institute of Global Prosperity' (IGP). According to the Department of Justice, at offshore seminars hosted by IGP, defendant Dennis Poseley promoted IFC's trust schemes to "thousands of people".

US District Judge Mary Murguia found the tax fraud scheme caused, at a minimum, a loss to the federal Treasury of between three to seven million dollars.

Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division, warned that: “People who promote tax evasion schemes will be prosecuted, convicted and sentenced to substantial prison terms."

She added that: “The Department of Justice is working vigorously to stop tax scammers who harm the federal Treasury and all honest taxpayers.”

Nancy Jardini, Chief of IRS Criminal Investigations, commented that: “Promoting abusive trusts and tax schemes for the purpose of committing tax evasion isn’t tax planning; it’s criminal activity."

She went on to add that: “Public confidence in our system of taxation is vital; therefore, we will continue our enforcement efforts to halt fraudulent tax schemes and hold the promoters of these schemes accountable for their actions.”

Poseley, a co-founder of IFC, was given the harshest sentence, and will serve an 84 month jail term for conspiracy to defraud the government and willful failure to file tax returns. He was also fined $175,000.

David Trepas, a consultant for IFC, was given a 60 month sentence after being found guilty of the same charges.

Keith Priest, described as an IFC "trustee" and Patricia Ensign, a co-founder of IFC, were each given 18 month sentences, while Rachel McElhinney, another consultant at the firm, was given a 16 month jail term.

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