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San Diegan Who Spearheaded Tax Avoidance Schemes for Dentists and Doctors Indicted on Tax Charges

A federal grand jury today (Dec. 16) indicted former dentist L. Donald Guess on two counts of filing false income tax returns. Guess ran a tax avoidance operation for medical professionals named xelan Inc. Four years ago it had more than $500 million of assets belonging to doctors and dentists. It also had connections in offshore tax havens such as Barbados and the British Virgin Islands. In 2004, the Internal Revenue Service raided xelan's offices. The indictment charges that Guess falsely stated that he donated $800,000 worth of stock in a related entity, Pyramidal Funding Systems, to Guess's xelan Foundation, and falsely claimed itemized deductions for 2001 and 2002.

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A federal grand jury today (Dec. 16) indicted former dentist L. Donald Guess on two counts of filing false income tax returns. Guess ran a tax avoidance operation for medical professionals named xelan Inc. Four years ago it had more than $500 million of assets belonging to doctors and dentists. It also had connections in offshore tax havens such as Barbados and the British Virgin Islands. In 2004, the Internal Revenue Service raided xelan's offices. The indictment charges that Guess falsely stated that he donated $800,000 worth of stock in a related entity, Pyramidal Funding Systems, to Guess's xelan Foundation, and falsely claimed itemized deductions for 2001 and 2002.

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Comments
7

"Pyramidal Funding Systems"? Are you kidding me? I'm sure that didn't set off any red flags at the IRS!

Dec. 16, 2008

Response to post #1: Marketing experts often recommend that corporate names honestly and clearly reflect the missions and operations of the entity. This one may have come too close. Best, Don Bauder

Dec. 16, 2008

You call this journalism Mr. Bauder? I am not sure how setting up qualified pension plans, buying disability and long term care insurance with pre tax dollars qualifies as a "tax avoidance operation." You leave out pertinent facts like the government lost its case against Xelan five weeks later in front of Judge Larry Burns and six months later Xelan won the cost of its attorney fees for this action against the government which is extremely rare. If you were a real journalist, you might question how and why the Federal governement levels serious criminal allegations (such as being a Ponzi scheme)at people in a civil arena, puts in a receiver to account for $500 million only to find not a dime missing without penalty to anyone in the government responsible for bringing this action. So after five years and millions spent on investigation the best the government can do is to bring this? Did you ever hear the phrase the government could indict a ham sandwich? Unfortunately in today's world of the internet and quisling journalists that masquerade as the government's press representatives allegations of criminal activity equal a conviction. Considering all of the events of the last six months that have cost the country trillions of dollars, I would really recommend looking at the folks running Fannie Mae and Freddie Mac to both yourself and the products affirmative action trying to bring this action against Mr. Guess.

Dec. 20, 2008

Response to post #3: This was a complicated matter -- not worth covering at length in a brief blog. It was not so one-sided as you suggest. Yes, a federal judge in San Diego threw out the early case. But subsequently, xelan agreed to shut down and pay $2.3 million to the IRS, without admitting wrongdoing. The foundation was under scrutiny from the beginning. Best, Don Bauder

Dec. 21, 2008

Actually the situation was very much as one-sided as MichaelS1962 suggests.

...and you are also correct: the situation was much more complicated than should have been covered in a brief blog.

Firstly, you are confusing 3 separate entities: Xelan, Inc, The Xelan Foundation, and Doctors' Benefit Insurance Company (DBIC).

DBIC was under IRS scrutiny, however there were no cases ever brought into court after years of inquiry - other than the emergency injunction the IRS hid behind in order to seize DBIC's assets and raid on Xelan's office and full disclosure of DBIC's records (including a list of all policy holders - who were subsequently audited). Of the literally thousands of individual and corporate audits that resulted from this push, none of the DBIC-related deductions were disallowed. Quite the contrary actually. All DBIC-related deductions were allowed.

You see, the situation boiled down to this: the IRS has unlimited resources, DBIC did not. In an effort to protect its policy holders, DBIC decided to settle and shut down before the costs of defending the IRS' assault drove them into bankruptcy. The result? All policy holders received their premiums back (taxable of course, yet with no penalties or interest). This is the highly-simplified version of what took place over several years.

Regarding the foundation, after its initial trial period AND a full internal audit by the IRS, the Xelan Foundation received a permanent letter of determination from the IRS. The Foundation was dragged into the fray as the IRS cast increasingly broad nets in their attack on DBIC and decided to focus on one aspect of the foundation's activities - which represented less than 8% of the foundation's total.

The result of this was that the disputed activity was adjusted and discontinued, but not deemed illegal (merely logistically not done properly). The foundation is still in existence today, however it was forced to change its name in light of several extremely negative press leaks regarding it, DBIC, and Xelan in major national news papers.

The lesson for me out of all this? The government not only makes the rules, they tend to not want to play by them.

March 12, 2009

To Clarification and MichaelS1962:

Donald Guess was sentenced to 18 months in federal prison yesterday. It appears the two of you failed to understand the facts of the case.

Nov. 20, 2010

"Pyramidal Funding Systems"? Are you kidding me? I'm sure that didn't set off any red flags at the IRS!

============

Now that IS funny!!!!

Nov. 20, 2010

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