November 25, 2004 | Read Time: 2 minutes
A federal court in San Diego has ordered the temporary freezing of assets held by a charity established by Xelan, an investment company, after the U.S. Justice Department accused the nonprofit group of being an abusive tax shelter.
According to court documents, the Xelan Foundation, in San Diego, allegedly encouraged the company’s clients — mostly doctors — to make tax-deductible contributions to it and then to direct those donations to pay for their children’s college tuition.
The charity made payments directly to colleges or universities or in loans to donors’ children, the documents alleged. The nonprofit group also is accused of paying its contributors for “pro bono” medical services.
“Operated in this way, the foundation fraudulently advises doctors that they can pay their children’s college tuition with tax-deductible ‘donations,’ pay themselves with tax-deductible donations for doing ‘volunteer’ work for charitable organizations, and claim a charitable-contribution deduction for payments to the foundation,” the documents said.
A lawyer representing L. Donald Guess, the founder of the Xelan corporation who is one of five directors of the Xelan Foundation, said that the charity and its managers denied any wrongdoing.
The scrutiny of the charity is part of a wider federal investigation into alleged tax abuses by the company and other entities it operates. According to the Justice Department, the court order froze more than $500-million in assets owned by Xelan and its related organizations.
According to documents filed by the Xelan Foundation in 2002 with the Internal Revenue Service, the charity had nearly $5-million in contributions and its total assets equaled $38.2-million. The charity paid Xelan and Xelan Investment Services nearly $1.4-million for marketing, fund-raising, and investment-management services that year. Each of these organizations have the same address as the charity.
The Justice Department’s statement about the court order against Xelan is on the Web at http://www.usdoj.gov/opa/pr/2004/November/04_tax_732.htm.
