The opinion of the court was delivered by: Hayes, Judge:
The Matter before the Court is the Motion for a More Definite Statement and/or Motion to Strike filed by Defendant Scott A. Waage (ECF No. 23).
On February 28, 2011, Plaintiff United States of America initiated this action by filing the complaint against Defendants Scott A. Waage and Robert O. Jensen. (ECF No. 1).
On June 6, 2011, Defendant Scott A. Waage filed a Motion for a More Definite Statement and/or Motion to Strike (ECF No. 23). On that same day, Defendant Robert O. Jensen filed a Motion to Join in the Motion for a More Definite Statement and/or Motion to Strike filed by Defendant Scott A. Waage. (ECF No. 24). On June 27, 2011, Plaintiff United States filed an Opposition. (ECF No. 26). On July 1, 2011, Defendant Scott A. Waage filed a Reply. (ECF No. 27).
II. Allegations of the Complaint
Defendant Scott A. Waage, an attorney, is the originator of an tax scheme that he calls "Strategic Integrated Planning" which "illegally reduces his customer's reported taxable income." (ECF No. 1 at ¶ 1, 20). Defendant Robert O. Jensen, certified public accountant, works with Waage and prepares tax returns for customer utilizing the illegal tax scheme. Waage and Jensen both perform work for Waage's law firm The Strategic Law Group.
"A typical customer of Waage and Jensen has a wholly-owned pre-existing successful business prior to engaging their services." Id. at ¶ 24. "Waage directs the creation of a sham consulting company ... the customer becomes the sole owner and employee ...." Id. at ¶ 29. "Waage creates a purported 'irrevocable trust' for the customer's benefit ... [which] subscribes to 100% of the shares of stock of the newly-formed consulting company." Id. at ¶ 30. "Waage falsely tells his customers that placing the consulting company in an irrevocable trust allows them to enjoy the tax benefits of this scheme ...." Id. at ¶ 31.
"Waage then directs the customer to have his pre-existing operating business 'hire' the newly-formed consulting company ...." Id. at ¶ 32. "[A]fter establishing the sham consulting company, the customer continues to operate his or her existing business in the same manner as before. The only difference is that the sham consulting company now charges sham fees to the customer's legitimate operating business for supposed consulting services in order to generate deductions for the operating business." Id. at ¶ 33.
"Waage and/or Jensen may also direct the customer's operating business to pay sham 'fees' to the consulting company at the end of the tax year in order to fraudulently increase the operating business's deductions for that year." Id. at ¶ 35. "Jensen then prepares and signs the federal tax returns for the customer and fraudulently reduces the amount of tax that the customer reports as owing." Id. at ¶ 24. "The consulting company typically pays no taxes because, at Waage and/or Jensen's direction, any money transferred to it is offset by a corresponding sham business deduction." Id. at ¶ 37.
As part of this scheme, the sham consulting company may lease the customer's home for a low rate and deduct "100% of their home utilities ... as well as expenses for landscaping, housekeeper, pest control and pool service." Id. at ¶ 58. The sham consulting company may pay for the customer's medical expenses, dependent care expenses, and education expenses, and deduct the amounts as business expenses. The sham consulting company may purchase a discriminatory pension plan or insurance policies, from a company which Waage has a financial stake, and deduct payment of the premiums as business expenses or artificially suppresses the policy's value.
Plaintiff cites "specific examples of the sham consulting company scheme." Id. at 10. First, the creation of TJRK, Inc. in 2001 which resulted in the deduction of $4 million in "bogus consulting fees" over the course of five years until 2006. Second, as an example of the "strategic integrated planning" tax scheme, the Complaint cites the creation of Katimreid in 2001 which resulted in the deduction of $1 million in "bogus 'business expenses'" over the course of five years until 2006. Id. at ¶ 72. Finally, as an example of the sham pension plan scheme, the Complaint cites the creation of CogentDesign in 2002 which resulted forfeiture of $900,000 in 2006 after the IRS determined the pension plan was discriminatory and improperly structured.
"[I]n at least tax years 2002 through 2006" Waage used his own tax schemes to funnel profits from his law firm to his consulting company to pay personal expenses and fraudulently reduce his reportable income by approximately $4.5 million. Id. at ¶ 130. "[F]rom 2004 through 2007" Jensen used a sham consulting company to pay personal expenses and fraudulently reduce his reportable income by approximately $42,000. Id. at ¶ 136.
"Waage or Jensen have not meaningfully curtailed their improper conduct, even with increased IRS scrutiny of their activities in the past few years." Id. at ¶ 140. "Waage and Jensen continue to falsely insist that their various tax-fraud schemes are a legal way to reduce taxable income." Id. "Waage continues to give seminars to the public on a regular basis to promote [his] supposed 'strategic integrated planning.'" Id. at ¶ 141. "[C]onferences were recently held on February 4, 2011 and February 11, 2011." Id. "Waage has continued -undeterred- in the promotion of his tax schemes despite the fact that at least a dozen former clients have sued him for, inter alia, malpractice, professional negligence and breach of contract after they discovered that the arrangements that Waage had set up for them fraudulently reduced their taxable income." Id. at ¶ 142 (citing four cases filed in the Superior Court of California against Waage or Waage's law firm). "[T]he tax schemes continue despite the IRS's investigation and numerous lawsuits related ...