JUSTICE DEPARTMENT SUES TO HALT PROMOTERS
OF ILLEGAL TRUST TAX SCHEME

Potential Revenue Loss Estimated At More Than $9 Million Annually

WASHINGTON, D.C. – The Department of Justice today filed a civil suit in Chicago to stop an alleged abusive tax scheme promoted by two Chicago-area men, Michael D. Richmond and Rex E. Black. The government complaint alleges that Richmond, Black and their businesses—The Liberty Network, Liberty Estate Planning, The Liberty Institute, Fiduciary Management Group, National Council of Certified Estate Planners, Association for Certified Estate Planning Attorneys, and Eagle Publications Trust—sell sham trust packages that improperly reduce or eliminate customers' reported federal income taxes. The suit also seeks to bar the defendants from preparing federal income tax returns and to require them to turn over their customer lists to the government.

"The IRS and the Justice Department are working closely together to halt the spread of fraudulent trust schemes," said Eileen J. O'Connor, Assistant Attorney General in charge of the Justice Department's Tax Division. "The Internet makes selling tax scams remarkably easy, but the public should be on guard—using the word ‘trust' doesn't make a scheme legitimate. Substantial civil and criminal sanctions may be imposed on those who participate in abusive trust schemes."

According to the complaint filed in the United States District Court in Chicago, Richmond and Black advise and encourage customers to violate federal tax laws by transferring their houses and other assets to sham trusts, which defendants describe as "Pass-Through Technology." The government alleges that the defendants falsely advise customers that these trusts allow customers to claim deductions for house payments, utilities, and other non-deductible personal expenses.

The defendants allegedly recruit agents and customers through the Internet and through ostensible "educational" programs conducted by their "Liberty Institute." The complaint alleges that the Liberty Institute teaches nationwide "certification" courses offering a "Certified Estate Planner" designation. According to the complaint, Richmond and Black charge customers trust set-up fees of $3,750 and other annual fees for tax return preparation, "trustee services," and secretarial services. The complaint alleges that Richmond is currently incarcerated. The IRS estimates the revenue loss from the scheme at more than $9 million annually.

Taxpayers should look for the following warning signs that may indicate an abusive trust promotion:

a promise to reduce or eliminate income and self-employment tax.
deductions for personal expenses paid by the trust.
depreciation deductions for a personal residence.
high fees for trust packages, to be made up by promised tax benefits.
lack of an independent trustee.
use of terms like "pure trust," "constitutional trust," "sovereign trust," "unincorporated business organization," or "common law trust."

Taxpayers can find more information about abusive trusts on the IRS website at www.irs.gov. People hearing about tax benefits that sound "too good to be true" should check them out with a trusted tax professional or the IRS. Anyone with information about suspected tax fraud should report it to the IRS tip line at 1-800-829-0433.

###

02-117

Court's Order Backs IRS-Justice Department Crackdown

WASHINGTON, D.C.– The Justice Department announced that a federal court in Chicago today barred Rex E. Black of Beecher, Ill. from selling fraudulent trust plans used to evade federal income taxes, and told him to post the court's order on the Internet. It also ordered him to turn over his lists of customers, and banned him from preparing federal income tax returns.

In addition, the order applies to affiliated organizations that Black has used to promote the trust schemes—The Liberty Network, Liberty Estate Planning, The Liberty Institute, Fiduciary Management Group, The National Council of Certified Estate Planners, Association for Certified Estate Planning Attorneys and Eagle Publications Trust.

"We are pleased that the court shut down this major scam, and that Mr. Black was ordered to post the injunction on his Internet sites. The Internet makes selling these kinds of tax scams remarkably easy, but the Department's Tax Division is going to use the Net to find and shut them down," said Eileen J. O'Connor, Assistant Attorney General for the Department's Tax Division. "People who are thinking of cheating on their taxes should be on guard – substantial civil and criminal sanctions may be imposed on those who participate in abusive schemes, and we will continue to pursue promoters who sell them."

Last year, 45 people were convicted for tax evasion for selling or using phony trusts. Defendants who were sentenced to prison faced sentences averaging more than five years. As of December 31, 2001, the IRS had 160 open criminal investigations involving trust schemes. The IRS estimates that fraudulent trust schemes cost the public about $3 billion in lost revenue each year.

According to papers the Justice Department filed in the case, Black and his organizations help customers violate federal tax laws by purporting to transfer their income and assets to bogus trusts. They also advise customers to claim tax deductions for such non-deductible items as depreciation on their homes.

The government's court papers further claimed that Black's "Liberty Institute" has trained over 2,500 people nationwide through "certification" courses resulting in a "Certified Estate Planner" designation. Upon "certification," Liberty agents then sell trust packages to customers for fees as high as $3,750, plus additional annual charges for tax return preparation, "trustee services," and secretarial services. Court papers showed that Black's National Association of Certified Estate Planners claims to have 730 Certified Estate Planners in 39 states. The IRS estimates that Black's activities cost taxpayers more than $9 million per year.

Today's court order requires Black to:

give the IRS his complete customer list,

mail a copy of the injunction and government complaint to all his customers and all people who, since 1995, attended Liberty Institute courses, which had titles such as "The Certified Estate Planner," "The Master Certified Estate Planner," "Charitable Planning Specialist," and "Elder Planning Specialist"; and

prominently display the injunction order on the first page of his organizations' Web sites.

The Justice Department has moved in the same case for a preliminary injunction against one of Black's associates, Michael D. Richmond. The court has allowed Richmond, who, according to court papers is currently in prison, additional time to respond to the lawsuit. A similar injunction case is pending in federal court in Boston against Kevin Mahoney, allegedly one of Black and Richmond's associates.

###

02-355

JUSTICE DEPARTMENT SUES TO HALT PROMOTERS OF ILLEGAL TRUST TAX SCHEME

Potential Revenue Loss Estimated At More Than $9 Million Annually

CHICAGO FEDERAL COURT BLOCKS NATIONWIDE FRAUDULENT TAX SCHEME

Court's Order Backs IRS-Justice Department Crackdown

JUSTICE DEPARTMENT SUES TO HALT PROMOTERS
OF ILLEGAL TRUST TAX SCHEME

CHICAGO FEDERAL COURT BLOCKS
NATIONWIDE FRAUDULENT TAX SCHEME