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US Justice Department Drops Civil Complaint Against Xelan

by Mike Godfrey, Tax-News.com, Washington

21 December 2004


The United States Justice Department has dropped its lawsuit against the California-based firm Xelan, which is accused of selling questionable tax shelter products to thousands of medical professionals in one of the largest cases of its kind for a number of years.

In a low key announcement, the Justice Department withdrew its civil complaint against Xelan last Friday, revealing in a statement over the weekend that it will channel its energies into the pursuit of the company through the Internal Revenue Service, which is claiming hundreds of millions of dollars in back taxes, interest and penalties.

The move comes hot on the heels of a ruling against the Justice Department by Judge Larry Burns in San Diego's District Court earlier this month.

Burns, overturning a previous ruling by a federal judge, announced that some $500 million in assets owned by 4,000 doctors connected to Xelan could not be frozen, as the US government had yet to prove that any wrongdoing had taken place.

Xelan, a group of about a dozen firms, attracted the attention of the tax authorities after selling several plans to doctors and dentists which purported to legitimately lower their tax bills. The government was interested in two plans in particular. One involved a charity administered by Xelan whilst the other was an insurance related plan which supposedly allowed buyers to defer taxes for a period of seven years.

On Friday, the IRS filed a proof of claim against the firm's marketing operation, Xelan Inc, in San Diego’s federal bankruptcy court for more than $474 million in back taxes and interest. It also filed a claim in the same court for $33 million in back tax from Xelan’s insurance arm, Pyramidal Funding.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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