IRS wants Alticor records for tax probe

The Grand Rapids Press/January 7, 2004
By Ed White

The federal government wants to know whether Alticor Inc.'s independent dealers and other customers are using offshore bank accounts to shield income and escape paying taxes.

The Internal Revenue Service is playing detective. It is seeking the identities of people who bought soap, vitamins, cosmetics or other Alticor products with credit cards drawn on accounts in the Bahamas, Barbuda, Antigua and the Cayman Islands.

A federal judge has ordered the Ada-based company, formerly known as Amway Corp., to turn over certain sales records from 1998 through 2001.

It is part of a national investigation of offshore credit-card abuse, which is costing the U.S. Treasury millions of dollars. Since August 2002, the IRS has gone to court in several states to get records from 123 businesses.

"U.S. citizens must pay tax on their worldwide income. Credit cards provide easy access to offshore funds and accounts in tax-haven countries that allow income to be hidden," the IRS said on its Web site.

"It is not illegal to have an offshore credit card, but the average person doesn't need one. There is a reasonable basis for believing that some people are using offshore credit cards to help them evade paying U.S. taxes," the agency said.

It's a serious issue for the IRS -- and a lucrative one for people who are skirting the law.

With the lure of partial amnesty, the government has collected more than $155 million from people who admitted they were shielding money in offshore accounts. They had to pay back taxes and interest, but other penalties, including possible criminal charges, were waived.

Mark Pendery, a former IRS lawyer now in private practice in Grand Rapids, said investigators must have uncovered something to lead them to Alticor's sales records.

"A summons first has to go through an incredible amount of review" by federal officials in Washington, Pendery said.

The IRS would not comment on why Alticor was selected. By requesting the information, the agency is not suggesting that the company has done anything wrong.

"As these companies conduct normal business with customers," the IRS said, "they are unaware whether someone even has an offshore credit card. ... This effort is aimed at individuals dodging their tax responsibilities."

Alticor will not object to the request for records.

"Once the summons is issued, we'll comply with it," a company lawyer, Bert Hultink, said Tuesday.

Alticor's products mainly are sold through a global band of "independent business owners," known as IBOs. The dealers have their own Grand Rapids-based association, which serves as a link to the company. The group declined to comment on the IRS investigation.

In an affidavit filed in court, an IRS agent said the national probe has turned up the names of people with credit cards linked to offshore banks.

They include "executives of publicly held companies, business owners, doctors, lawyers, investment professionals, promoters of tax shelters ... and wealthy individuals who are using the offshore cards to pay for living expenses," agent Joseph West said.

Some taxpayers are not disclosing the foreign accounts on their tax returns. Others have not filed returns.

"This information is being used in civil examinations and criminal investigations," West said.