Who wouldn’t like to settle with the Internal Revenue Service for pennies on the dollar?
In recent years, some 20,000 people have turned to American Tax Relief of Beverly Hills, Calif., to do just that after seeing the company’s advertisements on television, the Internet or in print, where actors portraying clients say the company reduced their back taxes to say, $2,000 from $24,000 or $40,000 from $200,000.
But the Federal Trade Commission said Wednesday that despite collecting $60 million to $100 million in upfront fees from often-desperate clients in recent years, American Tax Relief rarely, if ever, delivered on its promises.
It did, however, according to the F.T.C., deliver $30 million in customers’ funds to the accounts of the company’s owners or their relatives — money that was spent on a $3.4 million house in Beverly Hills; a garage full of cars, including a Ferrari, a Rolls Royce, a Bentley, two Porsches and two Mercedes-Benzes; and other luxuries.
At the F.T.C.’s request, a federal district court judge in Chicago froze the assets of American Tax Relief and its owners on Sept. 24 and appointed a receiver to manage the company.
The judge also approved a temporary restraining order prohibiting the company and its owners — Alexander Seung Hahn, who is on probation for an earlier marketing fraud case, and his wife, Joo Hyun Park, from making deceptive claims.
The F.T.C. does not have criminal jurisdiction or the ability to assess fines.
“Everyone has seen these commercials and wondered, ‘Can I really get away with paying the I.R.S. only a fraction of what I owe?,’” C. Steven Baker, the director of the F.T.C.’s Midwest Regional office, said in an interview. “The short answer is no.”
Of the 20,000 clients that the F.T.C. says it believes that American Tax Relief signed up, “we have not been able to find a single one” that the company helped to reduce a tax burden, said David Vladek, the chief of the commission’s division of consumer protection.
Mr. Hahn and Ms. Park could not be reached for comment.
Charles L. Kreindler, a Los Angeles lawyer who represents the company, said in a statement that it intended to fight the F.T.C. action, which “focused on a small handful of complaints and ignored the thousands of consumers who have been helped.”
In the last five months, Mr. Kreindler said, more than 60 tax abatement offers from American Tax Relief had been accepted by tax authorities, saving clients more than $2 million and reducing their taxes by 90 percent.
“During that same time period, American Tax Relief has successfully eliminated debilitating penalties for dozens of other taxpayers and placed them on payment plans that they can live with,” he added.
Mr. Hahn has previously been in trouble with the law for marketing scams. In October 2006, he was sentenced to five years’ probation for a conviction of mail fraud related to a telemarketing scheme at a company he ran in Garden Grove, Calif.
According to an affidavit filed in United States District Court in Santa Ana, Calif., Mr. Hahn started American Tax Relief in 1999 after paying a secretary at the tax-relief firm where he worked to steal a copy of its client list.
From 2002 through 2008, 410 different consumers filed 497 complaints against American Tax Relief with the Better Business bureau, the F.T.C., or various law enforcement agencies.
The complaints accused the company of failing to negotiate settlements with the I.R.S., resulting in penalties and additional interest charges for the customers, or making unauthorized charges to credit cards or withdrawals from bank accounts.
When customers complained to American Tax Relief that a debt was not settled, the company often blamed the clients for providing incorrect paperwork, missing deadlines or failing to pay all of the required fees, according to court papers.
Some of the $30 million that the F.T.C. says went to pay the personal expenses of Mr. Hahn and his wife were laundered through the accounts of his wife’s parents, Young Soon Park and Il Kon Park, according to the agency.
Mr. Baker of the F.T.C.’s Chicago office said that companies like American Tax Relief had created a widespread misimpression that anyone with an outstanding tax debt could settle with the I.R.S. for less than they owed.
While the I.R.S. does have programs of the type pitched by American Tax Relief — an “offer in compromise” settlement and a “penalty abatement” — the government is likely to accept less than it is owed only if the taxpayer makes an offer that is equal to or greater than the taxpayer’s ability to pay, including the value of all of the taxpayer’s property, cars, bank accounts and other assets.
An I.R.S. web site specifically cautions: “Taxpayers should beware of promoters’ claims that tax debts can be settled through the offer in compromise program for ‘pennies on the dollar.’ ”
Most of the clients who received any service from American Tax Relief were eligible for no I.R.S. program other than an installment agreement, which usually requires the full amount of the debt to be paid over time.
Installment agreements are easily arranged by individual taxpayers and rarely require expert assistance.
Mr. Vladek said that while the F.T.C. and other agencies determined that American Tax Relief took in about $60 million between January 2004 and October 2008, its continued business since then has probably pushed the total to more than $100 million.