San Francisco Federal Court Halts Sales of Tax Schemes
Update: December 8 2008 – Edwin Lichtig has posted a comment after this USDOJ release that I encourage everyone to read because it points out once again that things are NOT always as they appear. You've heard me talk about these caveats when looking at complaints boards or BBB complaints and this is another good lesson in that vein.
That doesn't mean this type of news or those types of complaints should be ignored but in many cases you may not have the proper context to make an accurate judgment about what they really mean.
FOR IMMEDIATE RELEASE
Monday, November 24, 2008
WWW.USDOJ.GOV
Walnut Creek, Calif., Firm Allegedly Helped Customers Avoid Tax on More Than $25 Million Through Insurance and IRA Scheme
WASHINGTON – A San Francisco federal judge has ordered Edwin Lichtig III and his Walnut Creek, Calif.-based firm, GSL Advisory Solutions, to stop promoting unlawful tax schemes, the Justice Department announced today. The defendants agreed to the permanent injunction order without admitting the government’s allegations against them. The United States sued Lichtig and GSL alleging that they promoted tax fraud schemes involving Individual Retirement Accounts (IRAs) that helped customers improperly avoid federal income tax on more than $25 million.
According to the federal suit, Lichtig, a Lafayette, Calif., insurance salesman, promoted a scheme called PAT (Pension Asset Transfer). It allegedly helped customers improperly avoid income tax on untaxed assets held in their IRAs through the use of a series of transactions with sham businesses, self-employed retirement accounts and understatements of the value of life insurance policies. The government complaint said a second scheme called FROCO (Financed Roth Conversion Strategy) allegedly helped customers use annuities to transfer funds from their traditional IRAs to Roth IRAs without paying the proper amount of tax that is imposed on such transfers.
"Stopping tax fraud schemes involving misuse of retirement accounts is a high priority for the Justice Department’s Tax Division," said Nathan J. Hochman, Assistant Attorney General for the Tax Division. "Since 2001, the Division has obtained injunctions against more than 360 tax return preparers and tax-fraud promoters."
Hochman thanked Justice Department trial attorney Grayson Hoffman and Bill Maier of the Internal Revenue Service’s Small Business/Self Employed Division for their work on the case.
Information about the Justice Department’s Tax Division and its enforcement efforts is available on the Justice Department Web site.
###
Leave a Comment
Comments on San Francisco Federal Court Halts Sales of Tax Schemes
6:36 pm
Herewith is my response.
In 2004 we were marketing the PAT and FROCO programs. The PAT program involved the purchase of a three pay second to die life policy inside a retirement plan with the subsequent distribution of the policy at the end of year 3 at the market value (usually midway between the account value and surrender value).
The FROCO program involved the purchase of an indexed annuity inside an IRA with the subsequent distribution of the policy at the end of year 2 at the market value (between the account and surrender value).
The IRS initiated an audit of all those organizations marketing this program (including GSL) and upon notice of the audit we stopped promoting as of 2004. The audit concluded in 2004 with no penalties or fees just a warning
from the IRS to cease promoting these programs (officially called an injunction).
The IRS sat on the paperwork necessary to conclude the case for 4 years until late 2008. Hence the recent press.
GSL and Ed Lichtig have not engaged in marketing this program since 2004 and immediately ceased such activity upon notice (even though the strategy was a widely accepted industry norm at the time). Since then we have engaged
solely in the distribution of primarily indexed annuities without any tax strategy.
This is a "non event" from our perspective in that this is activity that had ceased 4 years ago even though it is being publically released recently. In conclusion, we have complied with all the IRS requests and both the IRS and
GSL consider this matter as closed.
Ed Lichtig, MBA
7:09 pm
Thanks for posting Ed.
I encourage peoplel to read what Ed has posted and take it into serious consideration when reading the USDOJ release.
In other words apparently what is a bit misleading is that the release says it "halts" the activity in question even though according to Ed it had already "ceased" FOUR YEARS AGO.
That's an incredibly important distinction and definitely worth noting.
1:29 am
Paul,
Thanks for your note. I run a small one person business. I was one of many organizations that promoted this strategy 4 years ago. Ironically I was the least tax aggressive in that I advised a relatively modest tax discount whereas competing organizations advocated a mush larger tax discount. To my dismay, the IRS came after me, the smallest and least tax agressive of the group.
To the IRS's credit they went our their business amicably and then terminated the audit.
3:35 am
Edwin, I've updated the blog post AHEAD of the release to enourage people to read your comments.
I always tell them to take complaint boards, BBB complaints, etc. with a grain of salt as there is context they don't know (volume of transactions in particular) and this appears to also be another good lesson in that vein.