FEDERAL COURT BARS FORMER NEW YORK RESIDENT FROM SELLING ABUSIVE TAX PLAN TO EMPLOYERS

Defendant“s Conduct Allegedly Cost the Federal Treasury $6.7 Million

WASHINGTON, D.C. - The Justice Department announced today that a federal court in Central Islip, New York, has barred Nicholas P. Magalhaes, of Altamonte Springs, Florida—formerly of Smithtown, New York—from promoting a tax plan for employers that the court found violates federal tax laws. The permanent injunction order, signed by Judge Joanna Seybert of the U.S. District Court for the Eastern District of New York, also requires Magalhaes to give the Justice Department the names, addresses, and taxpayer identification, and telephone numbers of all plan participants and persons who brokered or sold his plans.

The government’s complaint alleged that Magalhaes and his businesses—Asset Accumulation, Inc.; Pinnacle Wealth Group, L.L.C.; Strategic Ventures, Inc.; and Pinnacle Wealth Concepts, Ltd.—sold plans that Magalhaes falsely claimed qualified as voluntary employees’ beneficiary association (VEBA) plans. If VEBA plans meet certain requirements, employers may deduct contributions they make to the plans to fund certain benefits for their employees. The government alleged that Magalhaes’s plans failed to meet those requirements. The suit alleged, the plans were abusive tax schemes designed to enable employers to deduct non-deductible deferred compensation for select high-level employees. According to the government’s complaint, the plans accomplished this by disguising the deferred compensation as employee benefits.

According to the complaint, the IRS has identified more than 100 employers across the country that have participated in Magalhaes’s plans, costing the Treasury an estimated $6.7 million from 1996 through 2001.

“Law-abiding taxpayers deserve the assurance that their competitors and neighbors are also paying what the law requires,” said Eileen J. O’Connor, Assistant Attorney General for the Department of Justice’s Tax Division. She thanked Anne Norris Graham, the Justice Department trial attorney who represented the government, and the agents of the IRS Small Business/Self-Employed Division who investigated the case.

More information about the case is available at http://www.usdoj.gov/tax/txdv05106.htm. More information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/index.html.