Tax Business Accused of Bilking 100,000 Customers

The Justice Department wants a federal judge to shut down a business that is accused of costing the government and 100,000 customers at least $500 million.

The New York Times reported that the business, the National Audit Defense Network, has cheated the government out of $324 million or more in taxes in the last three years, according to a civil suit filed in Las Vegas Thursday.

The company markets itself as a network of more than 1,000 former Internal Revenue Service agents and others who can win audits and stop collection of past due taxes. The company sought bankruptcy protection last June, but continues to operate.

Customers for years have complained about the company to the IRS and other government agencies that the business promotes tax deductions that are not legitimate. In addition, customers said the business charged $1,495 and up for its audit advice, but never delivered the service.

Court papers say the company would charge clients $2,475 for advice on how to claim a $5,000 tax credit plus a $5,000 tax deduction for the disabled. Customers supposedly acquired their own Internet shopping websites, which were to be modified to conform with the disability law.

The government said 10,000 people claimed the $5,000 disability credit and a $5,475 deduction for changes to the websites. However, only one website exists with total sales of about $600 a year.

One tax preparer for the company said in a sworn affidavit that an elderly Mississippi woman paid for four shopping websites even though she did not own a computer. Julia Thompson said when she complained to a supervisor that the woman could not possibly qualify for any tax benefits, she was told she would be fired if she continued questioning it.

Thompson said she has continued to work for the company because wants to protect customers from the company’s tax advice which she called "reckless, false, misleading and erroneous," the Times reported.

The National Audit Defense Network’s huge number of customers suggests that avoiding taxes is widespread. A recent survey of individual taxpayers said that 17 percent of Americans said that cheating on their taxes was acceptable last year, versus 11 percent in 1999. The IRS estimates that 15 percent of taxpayers paid no taxes in 2001, owing the government a total of $311 billion.

Another scheme promoted by the company involved deducting personal expenses as business costs, such as restaurant meals costing more than $75.

James Smallwood, a company salesman, said in a written statement that he was instructed to tell potential clients to "drop your business card off somewhere on the way to work and you can write off all your commuting expenses" and "when you go to dinner with your wife, drop your business card off and you can write off dinner as a business expense."

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