The Justice Department has filed a civil lawsuit asking a federal court in Las Vegas to issue a temporary restraining order against a telemarketing firm, alleging the company sold fraudulent tax schemes to 100,000 consumers.
Court papers allege that schemes by the Las Vegas-based company — National Audit Defense Network (NADN) — have cost the Federal Treasury an estimated $324 million.
Also named in the suit, filed in U.S. District Court on Tuesday, were three other companies — ALR, Inc. (operating under the name Success Matrix Group), Free Trade Enterprises (operating under the name Oryan Management), and ADA Adventure — and 13 individuals. The suit also asks the court to permanently bar NADN and four of the individual defendants from preparing federal income tax returns for others, and to order the defendants to turn over their customer lists.
NADN did not return a call for comment at presstime.
In papers filed for the case, the Justice Department alleges that NADN — a telemarketer that also advertises on the radio and online — runs a “tax-scam boiler room” that sells bogus “Web sites,” home-based businesses and “incorporation” packages designed to help customers claim improper tax deductions and credits.
The sites, according to the Justice Department, are allegedly designed to help customers claim to have an online business, and then improperly claim tax deductions and credits for supposedly “modifying” the site, purportedly to comply with the Americans with Disabilities Act (ADA).
According to court papers, NADN charges customers $2,495 to make “sham Web site modifications,” but also adds a “sham $7,980 promissory note” as part of the purchase price to artificially raise the total cost to $10,475. NADN allegedly tells prospects they can use that inflated cost to claim a $5,000 ADA income-tax credit and a $5,475 business tax deduction, reducing their taxes by more than double the $2,495 they paid for the “modifications.”
Purchasers never received their own Web site or their own ADA modifications, according to the court papers. Instead, NADN allegedly sold one Web site 17,000 times, and modified it only once while charging each purchaser for supposed separate modifications. Moreover, the Justice Department alleges, the supposed ADA modifications were largely useless to disabled computer users.
“People ought to use their common sense: the fact that a scheme is advertised on the radio or Internet, or sold by a large company, doesn’t make it legitimate,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division, in a statement.”
“The scale of this scheme is truly staggering,” said IRS Commissioner Mark W. Everson. “No matter how slick the sales pitch, taxpayers should be wary of anyone promising to eliminate their taxes. There is no secret way to escape paying taxes, either through a home-based business or any other scam.”
The suit also alleges that NADN sells a sham home-business tax scam, telling purchasers that, by starting such purported ventures they can deduct the cost of such non-deductible personal expenses as meals, travel and housing. Court papers also allege that NADN misleads prospects about the tax savings that can be obtained by having NADN help set up Nevada corporations.
The 13 individuals named in the suit are Las Vegas-area residents Robert Bennington, Weston J. Coolidge, Alan L. Rodrigues, Adam Mangabang, Lee Panelli, Christine Reid, Jeffrey Klingenberg, Rich Klingenberg, and Marie Orie. California residents Daniel W. Porter of Chino, Robert Goetsch of Hayward, Michelle M. Hernandez of Upland, and Joseph Prokop of Mt. Baldy were also named.
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