Tax Resolution Scams Update

Posted on: November 29, 2010 | By: dunn_access | Tax Resolution Scam Artists

By Stephen J. Dunn

On September 24, 2010 the Federal Trade Commission sued American Tax Relief, LLC, of Beverly Hills, California, (“American Tax Relief”) and its owners, Alexander Seung Hahn, 43, and his wife, Joo Hyun Park, 37, in the U.S. District for the Northern District of Illinois in Chicago.   The action alleges that American Tax Relief advertised on television, in print, and on the internet offering to resolve taxpayers’ balances owing to the IRS and State taxing authorities for a fraction of the amount owing; that some 20,000 taxpayers paid American Tax Relief $60 million-$100 million in retainers; that few of American Tax Relief’s customers realized any of the promised relief; that some $30 million was distributed from American Tax Relief to Hahn, his wife, and her parents; and that Hahn and his wife lived in a $3.4 million house in Beverly Hills and owned a Ferrari, a Rolls Royce, a Bentley, two Porsches, and two Mercedes-Benzes. The action also alleges that American Tax Relief charged customers’ credit cards without their approval, and that it gave few refunds.

Hahn was convicted of mail fraud in California in 2006.  He was sentenced to five months probation, and to pay nearly $1.3 million in restitution.

The same day that the FTC filed its action against American Tax Relief, Hahn, and Park, the District Court granted the FTC’s motion for a temporary restraining order, shutting down American Tax Relief.  The Court also appointed a receiver for the assets of American Tax Relief and those of Hahn and his wife.

As reported here, on November 16, 2010, the Sacramento County Superior Court granted the California Attorney General’s motion for a preliminary injunction broadly enjoining the operations of Roni Lynn Deutch and her company, Roni Deutch A Professional Tax Corporation, of North Highlands, California (collectively, “Deutch”).  The Attorney General’s $33.9 million restitution claim for consumers against Deutch awaits trial on the merits.

A new FTC regulation, 16 CFR Part 310, effective October 27, 2010, provides that fees for debt relief services may not be collected until: (1) the debt relief service successfully settles or changes the terms of at least one of the consumer’s debts; (2) there is a settlement agreement, debt management plan, or other agreement between the consumer and the creditor that the consumer has agreed to; and (3) the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.  The new regulation also provides that it is illegal for a debt relief service to misrepresent any material aspect of its services, explicitly or impliedly.  The new regulation applies only to for-profit debt relief services.  Tax obligations undoubtedly are “debts” for purposes of the new regulation.  In prohibiting the collecting of up-front fees for debt resolution services, the new regulation will go a long way toward discouraging tax resolution scams.

16 CFR Part 310 leaves at least two possible avenues of abuse.  First, I can foresee purportedly not-for-profit “tax resolution” operators popping up, just as purportedly not-for-profit credit relief services did.  Such operators could enjoy practically all of the lucre of their for-profit counterparts.  The exception in 16 CFR Part 310 for not-for-profit tax resolution services beckons for abuse. The FTC should reconsider it.  The Internal Revenue Service must be vigilant in scrutinizing purportedly not-for-profit tax resolution operators.

Second, I can foresee “tax resolution” operators taking credit card information and purported prior authorizations from taxpayers.  A prior authorization on a credit card would be almost as good as a cash retainer to a “tax resolution” operator.  Taxpayers must always scrutinize their credit card bills upon receipt, and object immediately to the credit card company if there is a credit reported for which the taxpayer did not contemporaneously sign.