Justice Department Sues Hawaii Residents to Stop Alleged Tax Fraud Scheme

WASHINGTON - The United States has sued four people and two corporations, all based in Hawaii, seeking to stop an alleged tax fraud scheme, the Justice Department announced today. The civil injunction suit, filed in U.S. District Court in Honolulu, alleges that Morgan Liddell, Cherie Bright, Edward Coda, Loren Trenholm, along with Bright Enterprises Inc. and Hawaii Financial Specialists Inc., have promoted a scheme that creates false tax deductions for customers through a series of sham transactions involving purported business insurance and retirement accounts. According to the government complaint, the Internal Revenue Service estimates losses to the U.S. Treasury from the scheme exceed $2 million.

The suit alleges that customers using the scheme transferred funds offshore as either purported tax-deductible insurance premiums or IRA investments, and then got the funds back through transactions designed to conceal that the customers were merely recovering their own funds. Methods allegedly used to return customers funds were sham loans, foreign credit cards issued to customers, and programs that enabled the customers’ funds to be used to pay their children’s tuition as purported “scholarships.” According to the government complaint, customers recovered 80 percent of their transferred funds in this way.

Since 2001, the Justice Department’s Tax Division has obtained injunctions against more than 245 tax preparers and promoters of tax-fraud schemes. Information about these cases is available on the Justice Department Web site at http://www.usdoj.gov/tax/taxpress2007. More information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax.