Nov. 21, 2004 – Plaintiffs in Amarillo, Texas, and a St. Croix-based firm reached an out-of-court settlement the week of Nov. 8 in a federal racketeering lawsuit filed by investors who claimed they were victims of a fraudulent tax-shelter scheme, according to the Amarillo (Texas) Globe-News, in a story dated Nov. 13.
Federal Internal Revenue Service agents executed search warrants in May 2003 against Kapok Management LP, a financial services company based on St. Croix that received Economic Development Commission tax benefits.
According to the Globe-News, the suit was filed earlier this year by MDS Holdings LLC, Michael D. Smith, ACF Management and Alvin Fults against Kapok Management, Peter C. Fagaon, James Ferguson CPA, Jonathana David Jackson CPA and the Horne CPA group.
Details of the settlement and agreement are expected to remain confidential, but the suit claimed the plaintiffs were led into investing in Kapok with the understanding they could establish residency in the Virgin Islands, set up office and receive the EDC tax benefits. After the IRS raid, the plaintiffs were told "the Kapok tax strategy was illegal and said they would go to prison if they filed tax returns based on the strategy," the Globe-News reported.
The Treasury Department in June issued an alert "cautioning taxpayers against promoters who market arrangements that purportedly provide reductions in U.S. federal taxation pursuant to the special rules applicable to the U.S. Virgin Islands. These arrangements involve taking positions that are highly questionable with respect to claims that the taxpayer resides in the U.S. Virgin Islands and that the taxpayer's income is from sources in the U.S. Virgin Islands or is connected with a U.S. Virgin Islands business. The notice describes certain meritless arguments that promoters typically put forward to support these claims, and warns taxpayers that the Internal Revenue Service will challenge claims made by taxpayers based on such arguments. The notice also outlines civil and criminal penalties that could apply to taxpayers who take these positions and to persons who promote them," a statement on the Treasury Office of Public Affairs Web site said.
