Taxes Blog

Finance Blogs » Taxes » FTC settles $15M tax scam

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.

Want the latest news on taxes, tax reform prospects, filing deadlines, Internal Revenue Service alerts and tax-saving tips? Subscribe to Bankrate's free Daily Tax Tip newsletter, our Weekly Tax Tip newsletter or, if you're a true tax geek, both!

You also can follow me on Twitter @taxtweet.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
15 Comments
dave
February 06, 2013 at 8:44 am

As i saw on a bumper sticker "Don't be a thief,the government hates competition"

Mike G.
February 06, 2013 at 8:31 am

The culprits were fined $15mil. The federal govt will try to reimburse the people scammed with that money. The question is, what is the govt going to do with the money it already has. The culprits were not charged with tax evasion. They supposedly paid taxes in the stolen money. Should that be reimbursed too?

Shirley Wilcox
February 06, 2013 at 7:46 am

As usual the issue gets caught up in the hype. There is only one issue here and that is "do the people scammed get their money or part of their money back or does it all go the Justice System and/or the government?" As well, the entire group involved in this scam should get jail time just like any ordinary American would. Any money found on the culprits who come out of jail should be confiscated. It is called "Justice". Simple isn't it. Then why is it not done no matter how much money it costs?

marie
February 06, 2013 at 6:50 am

so who is the bigger scammer? the company that promises tax relief or the government who takes as much money as they want in the name of taxes. so, how much will the "victims" get back $50 a piece if they're lucky. hopefully this company is now out of business.

Meekah
February 06, 2013 at 2:02 am

What is the average tax rate for payers that make over 6 figures a year? It shouldn't be anything they can't handle... unless they been spending too much that they didn't have. I was taught to put needs before anything. If you want lots of money to spend invest in a business that's going to put a check in your hand every month. If not stop being long-eyed, and greedy.

mcm7
February 06, 2013 at 1:55 am

folks, please understand bankers dont arrest bankers ,they just fine each outher for getting caught and walk away with the peoples money,and for the one or two the feds make public as a fall guy to "SHOW YOU" there protecting you, when they do there 3 to 5 yrs in prison they come out millionares for there part in the big "SHOW".
The LOVE of money (not Money it self)is the root of all kinds of self centered self serving .......Evil.When a person will do"WHATEVER IT TAKES" to get money there in is the problem.
do not sell your soul for money for it will surly sprout wings and fly away just when you thought it was securly in your keep........

Zack Aragon
February 06, 2013 at 1:21 am

What wasn't mentioned: did the perps get any jail time? If so, how much does 85 million get? If not, why?

Juan
February 06, 2013 at 1:16 am

Sadly unless someone offers evidence to the contrary in this
case its true

Reggie Richardson
February 06, 2013 at 12:36 am

First I agree with the points you made concerning this issue. I am an accountant with over 30 years of Income Tax experience. While some people get into tax trouble because of lack of knowledge, others know that what they are doing could come back to bite them. For example I have found people who received a taxable windfall but don't set aside enouch money to handle the income taxes due. I have had clients who make six figure income but think they can get around paying the taxes due. A number of people get in to trouble because they go to a tax professional after it is to late, many listen to friends and family who don't know or understand the tax law.

Robby
February 06, 2013 at 12:15 am

Therefore crime pays!

What a take! $85 million net on the deal. I know of no legitimate business with such fantastic profits.