Judge Freezes Over $500 Million in Tax Shelter Assets Deemed AbusiveBy Lynnley Browning
The New York Times -- A federal judge has temporarily frozen more than $500 million in assets owned by thousands of doctors and dentists who bought abusive tax shelters run by a San Diego investment company, the Justice Department announced Thursday.
The action, one of the largest of its kind, is rare and it is part of an effort by the Internal Revenue Service to clamp down on tax shelters it considers abusive.
About 4,000 doctors and dentists across the nation bought tax-reduction plans in recent years from the company, Xelan Inc., evading $420 million in taxes, not including interest and penalties, the Justice Department said in a statement. Also on Thursday, agents from the IRS and the FBI searched Xelan’s headquarters in San Diego.
The IRS is auditing the returns of several hundred of the doctors and dentists who used the tax shelters. Xelan had set up several types of plans aimed at helping doctors and dentists lower their tax bills. The government is focusing on two of them, one involving a charity administered by Xelan and the other, disability insurance, which the company said would allow investors to defer taxes on income for seven years. The tax agency asserts that it found some two-dozen instances in which doctors used the charity to make “contributions” to their children’s college tuition.
Xelan -- whose full name is Xelan, the Economic Association of Health Professionals -- is a privately owned group of about a dozen companies that sell financial planning, investment and insurance products through a cross-country network of offices.
The company, founded and run by Dr. L. Donald Guess, a San Diego dentist-turned-financial adviser, is the subject of a criminal investigation by a federal grand jury in San Diego. Calls and e-mail messages to Xelan’s headquarters were not returned Thursday.
Four units of the company filed for bankruptcy protection in July as the investigation mounted, and the entire company is in the hands of a court-appointed receiver.
Judge Thomas J. Whelan of U.S. District Court in San Diego issued the order temporarily freezing the assets on Tuesday after the Justice Department asked him to do so. The order, which also directs Guess and six other Xelan executives to turn in their passports and not destroy any company records, is in effect through Nov. 18, when he will consider whether to extend it. The Justice Department hopes to have the temporary freeze made permanent, so that the assets will be available to cover tax bills. A Justice Department lawyer said that about $50 million of the assets were in various bank accounts in San Diego, while about $505 million were in investment accounts at the Vanguard Group, the giant mutual fund firm based in Valley Forge, Pa.