DOJ Announces Sentencing of Former National Trust Services Employee for Tax Evasion

In June 2009, Prescott pleaded guilty to tax evasion and admitted to evading at least $550,000 in personal income taxes for 1998 and 1999. According to the indictment, the plea agreement and the government's trial brief, Prescott and his former business partner Leroy Fritts (now deceased) earned significant income from the nationwide promotion and sale of abusive trusts through NTS, which they founded in 1988. Prescott and Fritts deposited approximately $3.5 million into various bank accounts through the sale of such trusts. They also earned income from recruiting clients of NTS to invest in Fountainhead Global Trust (FGT), a purported offshore investment that promised returns as high as 50 percent per year.

According to the government's trial brief, FGT was a Ponzi scheme which collected approximately $20 million in investors' funds from 1995 through 1999. FGT transferred some of the money to an offshore account in the Cayman Islands at the Bank of Bermuda, ostensibly to be invested in high-interest debt through a Florida entity called "Cash 4 Titles." Prescott and Fritts then funneled part of the money in the account back to themselves. They also took large sums of investors' funds without ever sending the money offshore. The government asserts that instead, they spent the funds often by direct payments from FGT bank accounts on luxury goods and real estate. Eventually the scheme broke down and the vast majority of investors lost their full investments.

According to the government's trial brief, despite making significant income from NTS and FGT, neither Prescott nor Fritts filed any individual federal income tax returns for 1998 or 1999. Prescott last filed a tax return in 1991. Prescott and Fritts used FGT money to purchase, among other items, a nearly $3 million ranch near Grants Pass, Ore., on which they began construction of two custom-built luxury log homes. The construction budget was approximately a combined $2 million, and they spent over $465,000 before halting construction in 1999. Prescott and Fritts also purchased solar panels for the ranch for over $328,000, frozen food in anticipation of a year 2000 apocalypse for over $1.1 million and numerous vehicles and other personal items.

According to the government's trial brief, Prescott and Fritts used an array of purported trusts and related bank accounts, including numerous offshore bank accounts at the Bank of Bermuda in the Cayman Islands, to conceal their income from the IRS. Prescott and Fritts also used false or fictitious taxpayer identification numbers and offshore credit cards in fake names issued to them by the Bank of Bermuda in the Cayman Islands.

In June 2003, a federal court in San Diego permanently barred Prescott and his business, Trust Educational Services, from selling trust schemes falsely claiming that personal expenses incurred by customers could be paid through a trust in order to obtain tax benefits not available to individuals. Prescott agreed to the court order and was required to give the Justice Department records showing the names of customers who attended his workshops or used his "trust system. According to papers filed by the Justice Department in the case, Prescott's bogus trusts encouraged purchasers to under report their income and claim improper deductions on their tax returns, resulting in an estimated $135 million revenue loss to the U.S. Treasury.

Acting Assistant Attorney General John A. DiCicco commended the IRS-Criminal Investigation special agents who investigated the case, as well as Tax Division trial attorneys Jay Nanavati and Timothy Stockwell who prosecuted the case.

Additional information about tax fraud schemes to watch out for may be found on the IRS Criminal Investigation Web site http://www.ustreas.gov/irs/ci. Additional information about the Justice Department's Tax Division and its enforcement efforts may be found at http://www.usdoj.gov/tax.