The Justice Department acted Thursday to stop promoters from selling a tax shelter that takes advantage of tax laws meant for churches and church leaders.
The Justice Department filed suit in federal courts in Washington, Oregon and Texas to stop six individuals from selling the scheme and make them surrender a list of customers.
Customers were allegedly advised to create a company known as a "corporation sole" used by churches, religious institutions and church leaders. The Justice Department alleged that 700 customers, located in nearly every state and some foreign countries, participated.
According to papers filed in the cases, the advisers instructed customers to transfer their assets and income to the corporations sole. The corporations sole then paid customers' personal living expenses, not church expenses. The Justice Department said the promoters told those customers not to file tax returns or pay taxes.
"Be wary of any scheme designed to hide income or assets from the Internal Revenue Service," said Eileen J. O'Connor, assistant attorney general for the Justice Department's tax division.
The IRS includes the corporation sole among a dozen tax scams that taxpayers should avoid. Participants in the scam establish themselves as the leader or overseer of a nonexistent church and claim exemption from taxes as a charitable organization, the IRS said.
Papers also allege the promoters advised taxpayers to file false tax returns seeking refunds based on the argument that compensation for personal labor — such as wages — is not taxable.
The promoters marketed the products on the Internet, in conference calls and seminars and charged customers $200 to $2,295 to participate.