Kauai accountants accused of tax fraud
The U.S. Justice Department has accused four Hawaii residents and two corporations of promoting a tax fraud scheme that resulted in losses exceeding $2 million to the federal treasury.
The lawsuit filed early yesterday in U.S. District Court yesterday names certified public accountant Morgan Liddell of Lihue; Cherie Bright of Kapaa; certified public accountant Edward Coda, also a certified financial planner; and Loren Trenholm of Pukalani, a certified financial planner.
Liddell and Bright co-own Bright Enterprises, a tax consultant business in Lihue.
Chris Cannon of San Francisco, Bright's attorney, said he could not comment on something he had not yet seen. Bright has not been served with the suit.
Coda is vice president of Hawaii Financial Specialists Inc. and did not return a call for comment.
Trenholm of Pukalani also could not be reached.
According to the Department of Justice, as early as 1997, the defendants promoted a scheme "creating false tax deductions for customers through a series of sham transactions involving purported business insurance and retirement accounts."
Clients -- typically business owners who operate their businesses as sole proprietorships or pass-through entities -- were instructed to transfer funds offshore as purported tax-deductible insurance premiums or individual retirement account investments, and were returned the funds through transactions meant to conceal that they were merely getting their own money back, the Justice Department alleged.
The clients got their money through sham loans, foreign credit cards issued to them, and programs that enable the clients funds to be used to pay their children's tuition as purported "scholarships," according to the suit.
The defendants knew that the deductions were improper and understated their clients' reported income, the complaint said.
The government is asking, among other things, that the defendants be ordered to cease their illegal activities and comply with tax laws.