A prominent southern Illinois automobile dealer and three promoters of a tax fraud scheme in the U.S. Virgin Islands were indicted on a variety of tax and wire fraud-related charges, the Justice Department and the Internal Revenue Service recently announced.A federal grand jury in East St. Louis, Ill., returned the 21-count indictment, which charges James A. Auffenberg Jr. of Swansea, Ill., Peter G. Fagan of De Leon, Texas, James W. Ferguson III of Amarillo, Texas, and J. David Jackson of St. Croix, U.S. Virgin Islands, as well as a number of alleged business fronts held by the men. They face conspiracy, income tax evasion, wire fraud and aiding in the filing of false individual and corporate income tax returns charges.
The indictment also seeks the forfeiture of more than $16 million in cash.
According to the government, Auffenberg, the dealer principal at Auffenberg Chrysler Jeep, allegedly joined a Virgin Islands-based partnership to fraudulently take advantage of a Virgin Islands economic development program. The program granted businesses a 90-percent tax credit on federal taxes, and a 100-percent exemption on local taxes -- so long as certificate holders in the partnership were “effectively connected” with the conduct of a trade or a business in the Virgin Islands and were residents of the islands.
Ferguson, Fagan and Jackson allegedly promoted the scheme to wealthy individuals, who would join the partnership as limited partners and receive a turnaround of their tax-free earnings, minus a 5-percent transaction fee for “management service.”
According to the indictment, the partnership group provided no management services, and the promoters encouraged the limited partners to “recycle” the same funds in and out of the partnership’s bank account to fraudulently maximize the tax credit.
The indictment also alleges that Auffenberg and other limited partners fraudulently claimed to be U.S. Virgin Islands residents, but continued to reside in the United States and run their businesses as they had previously, generating income from business conducted on the mainland.
According to the indictment, Auffenberg and other limited partners prepared and filed false tax returns with the Virgin Islands Bureau of Internal Revenue, instead of filing returns with the IRS to report their U.S. income, and fraudulently claimed the 90-percent credit in the process. According to the government, between 1999 and 2002, more than $300 million was cycled through the accounts, and more than $74 million dollars in fraudulent tax credits were claimed.
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