JUSTICE DEPARTMENT SUES TO STOP ALLEGED TAX FRAUD SCHEME INVOLVING BOGUS TAX EXEMPT ORGANIZATIONS

Northern California Man Allegedly Sells Fraudulent “Corporation Sole” Program

WASHINGTON, D.C. - The Justice Department announced today that it has sued to block William J. Kennedy of Livermore, Calif., from selling an alleged tax fraud scheme. The complaint, filed in U.S. District Court in San Francisco, alleges that Kennedy falsely advised customers that they can use an entity known as a “corporation sole” to avoid paying federal income taxes.

Kennedy conducted his business through an entity he calls the “Ear of Malchus,” which is referenced in the New Testament. According to the complaint, the IRS estimates that Kennedy’s tax-fraud scheme results in an annual loss to the federal Treasury of $500,000.

Some states authorize corporations sole to enable religious leaders to hold property and conduct business, the complaint states. But tax benefits are available to a corporation sole (or any other organization) only if the organization qualifies as a tax exempt religious or charitable organization under federal tax laws. The complaint alleges that Kennedy falsely advises customers that corporations sole used for their personal benefit can qualify as tax-exempt religious organizations.

The government’s complaint states that Kennedy charges his customers between $15,000 and $25,000 to participate in the corporation sole scheme. The suit asks the court to order Kennedy to remove from his website all information advertising the scheme and to give the government a list with his customers’ names, addresses and Social Security numbers.

Corporation-sole scams are listed in the IRS’s annual list of the “Dirty Dozen” tax scams http://www.irs.gov/newsroom/article/0,,id=136337,00.html. The Justice Department has obtained permanent injunctions against a number of people who sell corporation-sole scams. Two examples are found at http://www.usdoj.gov/tax/txdv05657.htm and http://www.usdoj.gov/tax/txdv05030.htm.

Since 2001, the Justice Department’s Tax Division has obtained injunctions against more than 200 tax preparers and tax-fraud promoters. More information about the Justice Department’s efforts against tax-scam promoters can be found at http://www.usdoj.gov/tax/taxpress2006.htm. Information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax.