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FTC settles $15M tax scam

By Kay Bell · Bankrate.com
Tuesday, February 5, 2013
Posted: 4 pm ET

There's only one thing worse than owing a tax bill you can't pay. It's finding out that the company you hired to help you reduce your tax debt didn't do what it promised.

That's what the Federal Trade Commission alleged happened to clients of American Tax Relief of Beverly Hills, Calif. Federal prosecutors first filed charges against the company in 2010, contending that the company was running a nationwide scam that, at that time, had bilked consumers out of more than $60 million by falsely claiming it could reduce people's tax debts.

Subsequent federal court filings raised the amount of money lost in the purported tax relief schemes to more than $100 million.

The FTC announced Tuesday that it had reached an agreement with American Tax Relief under which the company will pay more than $15 million in cash and assets to settle the charges.

This is the FTC's first action against a tax-relief company.

Road to tax scam settlement

In the original court filing more than two years ago, federal authorities alleged that American Tax Relief charged upfront fees ranging from around $3,000 to $25,000 for purported tax-relief services. According to the court filing, company ads included a toll-free number for consumers to call for a "free consultation," after which virtually all consumers were told that they qualified for a tax-relief program that would significantly reduce their tax debts.

Then last August, the federal court issued a partial summary judgment in favor of Uncle Sam.

That decision found that American Tax Relief had falsely claimed that it had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts. The court also ruled that company owner Alexander Seung Hahn was personally liable for the challenged tax-debt relief practices.

In that ruling, the court imposed a more than $103 million judgment against American Tax Relief, Hahn and others connected with the company.

So why would the FTC now accept a deal that pays only around 15 percent of what federal investigators originally charged was bilked from folks facing overwhelming tax debts?

It comes down to pragmatism. Prolonged court fights cost time and money.

And, says FTC spokesman Frank Dorman, "That's all there is to be gotten."

During the course of the FTC investigation into American Tax Relief, federal authorities seized money from bank accounts, a Ferrari and placed liens on two residences, one of which was valued at $3.4 million.

"We expect to have more than $15 million for redress after receiving the cash and liquidating all of the assets," says Dorman.

Road to refunds

That brings us to the next big question: What does this agreement mean to the taxpayers who forked over money to American Tax Relief and didn't get the results they were promised?

"The ideal plan is to return money to the consumers," says Dorman.

The FTC has a refund program. As in this tax scam case, however, it's difficult to get back every dollar that federal authorities allege was illegally taken from consumers.

Still, getting some money back is better than nothing.

During the American Tax Relief settlement process, the FTC will A) go about getting the cash from the company and B) set up a redress program to distribute the funds.

So stay tuned, former American Tax Relief customers.

Don't get taken

And if you find yourself owing the Internal Revenue Service more money than you can pay, make sure you don't fall for pennies-on-the-dollar claims that can't be fulfilled.

The FTC and reputable tax professionals say:

  • Read all notices from the Internal Revenue Service and/or your state tax collector. Ask those offices about payment options, such as an installment agreement or an offer in compromise.
  • If you need additional help in extreme situations, contact the National Taxpayer Advocate Service. Many states also have taxpayer advocates.
  • Be skeptical of promises from companies that automatically say you are qualified or eligible for a tax-relief program. Only the IRS or your state comptroller can make that determination.
  • Run, don't walk, away from any company that requires an advance fee for tax-relief services.

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15 Comments
Joe Williams
February 06, 2013 at 10:46 am

Proving once again.... If it is too good to be true...... It is a lie and a scam. Trust no one!

Taxpayer
February 06, 2013 at 10:21 am

No one is going to prison? Why not? They walked away with 85% profit.

Larry T
February 06, 2013 at 10:14 am

We all hate paying taxes especially when you have to go through all of the federal tax documents. The IRS makes it so difficult. Taxes should be far and easily to pay. That is where a flat tax or better yet a fair federal sales tax. That would elimate all the trouble of filing taxes. The tax payers would save money for preperation of filing taxes and less IRS staff would be need. Also the foreign corperations should pay corperate income taxes using a flat tax. Also have USA corperations pay a flat tax as well.

OG
February 06, 2013 at 9:34 am

"" Stop trying to avoid the IRS..." file your taxes on time...and you won't get scram...!" "I Bet the guy who brought that Ferrari..never paid a dime in tax's over the years...But had money to by a million car...!!"