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US attorney fined millions for timeshare donation scam 

Montana Federal Court charges James Tarpey for promising tax breaks to timeshare owners, then pocketing the profits

In a landmark case for US timeshare owners, attorney James Tarpey faces a penalty of $8,465,000 for the false donation scam he ran for over a decade. Tarpey has been in and out of court since 2015, but the final penalty wasn’t agreed upon until December 2021. This is an excellent bit of news to start off 2022 for timeshare solicitors, as it proves that even scammers in positions of power are being held to account.

What did the scheme involve?

The scheme Tarpey ran involved the creation of a “tax shelter”, which can refer to any strategy used to reduce the amount of income tax owed to the US government. This kind of tax avoidance isn’t always illegal and can include things like choosing wise investment opportunities or claiming deductions on charitable donations. When a tax shelter becomes illegal, it’s usually through exploiting one of these strategies and trying to pass it off as legitimate, which is exactly what Tarpey did.

In 2006 he set up Project Philanthropy Inc. dba Donate for Cause (DFC), following all the necessary steps to ensure its legal status as a non-profit organisation. While it seemed to be above board, he was creating the charity with false pretences from the start. His first step was to convince desperate timeshare owners that they could be free of their financial commitments before offering to appraise the value of their units. At this stage, he would provide hugely over-inflated appraisals, which would give false hope to the owners and convince them to enter his scheme. Rather than selling their timeshares directly to Tarpey, they would donate them to DFC. The attorney assured people that this would count as a charitable donation, and therefore be tax-deductible.

Next, Tarpey would sell on the timeshares for the extremely low prices we’re used to seeing in the resale market, even down to double digits. This would be the first blow to the previous owner, as the appraisal price would frequently be in the thousands. Once the transaction was completed, they were hit with hefty fees from the scheme’s partner company Time Share Closings Inc., currently doing business as Resort Closings, Inc. This process first drew the courts’ attention in 2019, when Tarpey and his associates were disqualified from carrying out appraisals, as they weren’t independent from the end result.

With no timeshare left to their name and huge losses from the sales process to absorb, the owners could at least be comforted by the tax breaks Tarpey had promised. However, when the IRS evaluated the deductions being claimed for charitable donations, they frequently refused to allow them. This can happen for many reasons, but Tarpey would have known that these charitable tax breaks were primarily created for philanthropists with six-figure salaries. The legislation has made the deductions less accessible over the years, and presently claims for small donations are rarely successful.

Though several charities did receive large donations from DFC, the federal court found that Tarpey’s personal gross income from the scheme was $19,623,437. While he was enjoying these profits, his targets were left worse off than they started, even facing investigations for tax avoidance from the IRS. This whole case has been a timely reminder of the old adage “If it sounds too good to be true, it probably is”. While scams like these continue to promise a quick get-out, great returns, and tax breaks, the safest way to find out where you stand is to instruct regulated timeshare solicitors.

Find full details of the court case here.