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U.S. Sues O.C. Man in Tax Scam

Anthony Hargis is accused of running a 'warehouse bank' that hid transactions and allowed clients to avoid paying the IRS.

March 10, 2004|Kathy M. Kristof | Times Staff Writer

The Justice Department sued a Fountain Valley man Tuesday in an effort to shut down an allegedly fraudulent "warehouse banking" operation that officials said was used to evade federal income taxes.

Warehouse banking is a scheme in which the operators solicit deposits from people and "warehouse" the money in commingled accounts. The aim is to keep individual deposits and disbursements under the Internal Revenue Service's radar.

"The promoters and operators of so-called warehouse banks claim to offer financial privacy," Eileen J. O'Connor, assistant attorney general for the Justice Department's tax division, said in a statement issued by the department. "What they are actually offering is a ticket to trouble for themselves and their customers when that privacy leads to tax fraud."

The suit, filed in U.S. District Court in Santa Ana, alleges that Anthony L. Hargis used Internet advertising to promote a fraudulent system aimed at hiding income and assets from tax authorities. The ads contended that federal income taxes were unconstitutional and pitched warehouse banking as an alternative to being "enslaved" by the "bandits of mankind," according to the complaint.

Once accounts were opened, Hargis would tell his clients to have their employers make checks payable to him and to have their creditors submit their bills to him. Hargis would collect the deposits and pay client expenses out of the commingled accounts, making it virtually impossible for federal tax authorities to track how much income Hargis' clients received, how much they had on deposit and how much they spent.

At the end of 2001, Hargis had about $7.2 million on deposit in nine commercial bank accounts in California and Texas, the complaint said.

Based on information received from those banks, the IRS estimated that Hargis had at least 253 customers.

Neither Hargis nor his attorneys could be reached Tuesday.

In a related case filed in federal court in Santa Ana, the Justice Department has asked the court to hold Hargis in civil contempt and jail him until he complies with a court order to turn over a list of his customers.

Hargis has asserted in court filings that the IRS does not have the right to the warehouse bank's records and has refused to turn over client information.

The IRS has been able to gather information on 14 of the company's clients, who the agency says owe $1.36 million in back taxes -- an average of $97,376 per customer. As a result, the agency estimates, the company's customers probably owe a total of more than $24 million in back taxes.

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