TORONTO, ONTARIO--(Marketwired - Feb. 3, 2014) - Just as Canadians are filing 2013 taxes and preparing for a new fiscal year, a prominent Toronto law firm is warning consumers about a tax fraud that inflicts serious financial consequences on its prey. Devry Smith Frank LLP (DSF) is currently defending victims of a classic business losses scheme where fraudsters take a lump sum of cash from taxpayers up front, promising to pay it back - with dividends - after allegedly 'investing' it. The schemers then claim an inflated sum as a business loss on the victims' tax returns, supposedly until the business is 'profitable.'
This business loss scheme is called "Partners in Research", run by a web of corporations including Agemo Corporation, Doctor Tax, Accountable Tax and Onyx International Inc., among others. Approximately 300 Canadians are casualties to the contrivance. Partners In Research has taken as much as $3 million dollars from investors and left them holding the bag, owing huge penalties and interest. "Don't be fooled," says Devry Smith Frank LLP tax lawyer Eldad Gerb. "These fraudsters count on the idea that you don't understand how scientific research funding works, and that by getting you a so-called tax refund before the research commercializes, they're running a legitimate business."
Dianne Hudson, a GTA mother of five, was looking for a way to help make ends meet for her large family. With the best of intentions, she invested borrowed funds in the scheme, and fell victim to the PIR scam: "My husband and I are a blended family with five children and the bills are endless," said Hudson. "To me, this seemed like a chance to give my family a little more than the 'practical' life we have always led. I firmly trusted that this investment was true and my agent was very knowledgeable and educated on the investment. I would like to tell our side of this horrible fraud to the media on behalf of all of us."
The scam works like this: Partners In Research claims they've taken out a seven year loan on your behalf to invest upwards of $350,000 in scientific research. They ask for you to pay interest and a warranty fee on the loan, plus a membership fee totalling about $10,000. Then, PIR claims the full loan amount will be spent on research projects that create jobs for Canadians. You'll get your investment back this year (and then some) through a tax deduction, and earn profits later. Sounds good, right? Unfortunately, the refund received is based upon a claim that your investment took a loss in the amount of 1/7th of the loan each year, usually $50,000 or more. The Canada Revenue Agency (CRA) later tracks down the fake deduction and the refund must be repaid. In addition, the victim owes a 50% penalty on the income tax owed, plus interest on both the refund and penalty. So not only does your investment disappear overnight, but the payback to CRA is serious money, usually as much as $30,000 or more.
Dianne Hudson is facing potential fines and interest of up to $60,000 for her part in the investment. "We'd hoped this was a means to help us, and it's burying us," says Hudson. "My credit is everything to me. I will pay for 20 years if I have to, but I will not declare bankruptcy."
DSF recommends taking a sceptical eye to anyone proposing a business deal that sounds too good to be true. When it involves up-front tax refunds, it usually is.
About Devry Smith Frank LLP (http://www.devrylaw.ca):
Devry Smith Frank LLP (DSF) is Toronto's largest law firm outside of the downtown core. Since 1964, DSF has been a trusted advisor and advocate for corporations, individuals and small businesses. DSF is a dedicated group of over 50 lawyers, offering a broad range of legal services to our individual, business and corporate clients. We are driven by delivering value to our clients in all that we do. DSF's clients are corporations, institutions and individuals who come from all industries and walks of life including: insurance companies, banks, amusement park designers, printers, doctors, dentists, plumbers, lawyers, assembly line workers, photographers, and many, many more.