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Tax Court Rejects Claims of Head of Church of Hakeem

July 16, 1985 GMT

WASHINGTON (AP) _ After the Church of Hakeem was granted a tax exemption by the Internal Revenue Service, contributions were so heavy that it took an armored truck to haul them from church meetings.

In less than a year after the church was founded in Alameda County, Calif., by Al Hakeem Abdul Rasheed, it owned a stable of luxury cars, including two Rolls-Royces and a $918,000 yacht. Members paid $500 each to join and were solicited to become ministers and invest in the church’s ″Dare to Be Rich″ program. It promised a $25,000 investment would be turned into $100,000 in nine months.

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In six months, according to Tax Court records, Rasheed banked more than $2 million. He later was convicted on six counts of mail fraud in connection with the church’s activities - and the IRS billed him for $1.7 million in taxes.

Rasheed took the IRS to Tax Court, contending he was only a trustee for all the church’s money. The court ruled that Rasheed was running a Ponzi-type pyramid swindle - people who bought into the program early were paid with money from later contributors - and that the church was simply his alter ego. The full tax bill was upheld.

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If you sell your principal home and buy another costing at least as much within two years, you don’t have to consider the profit as a taxable capital gain.

An employee who was transferred to a new location sold his house but was unable to buy another one within two years because of a requirement that he live in company-provided housing at the new site. The profit is taxable, the IRS ruled, noting the only exceptions are for individuals whose tax home is abroad and active-duty military personnel.

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Ronald G. Marquart of Phoenix, Md., owned 49 percent of Fein-Marquart Associates, Inc., a computer-software designer. He drove a racing car and the firm deducted $25,000 of his expenses as advertising expenses, claiming sponsorship of the car would help recruit computer programmers with great potential for the company.

Some of the qualities that make a good racing driver are shared by super- programmers, Marquart argued. ″Race-car-driving people are generally adventurists, they look for and seek out challenge,″ he testified in Tax Court.

The court held that the corporation received no benefit from racing, denied the deduction, ruled that the $25,000 was just a dividend paid to Marquart and ordered him to pay tax on the money.

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Sen. Gary Hart, D-Colo., pointing to the Beirut hijacking episode as a reminder of how quickly a development in the Middle East can affect the United States, has offered a bill to raise the tax on imported oil by $10 a barrel. In addition to encouraging conservation, the higher fee would boost government revenues by $18 billion a year, which, Hart says, would be earmarked for helping low-income families pay their energy bills and for reducing Social Security taxes.

Noting that 30 percent of U.S. oil now is imported, Hart told colleagues, ″The longer we rely on foreign sources, the more we risk armed conflict to protect them.″

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The list of ways that Americans will invest their money in an effort to avoid taxes seems almost limitless. A recent IRS bulletin listed three dozen tax shelter promotions that have been temporarily shut down by court injunction. There was one factor evident in just about every case: a substantial overstatement of the value of the asset.

Among the assets: recycling equipment, plates from which stamps are printed, a television show, a gold mine, a small business computer system, master recordings, dairy cattle and a cable television system.

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The ″Buy American″ slogan has not preserved the jobs of U.S. workers, says Rep. James A. Traficant Jr., D-Ohio, so he’s recommended a new one: ″It Pays to Buy American.″

Under a bill he has introduced, a 10 percent tax credit would be allowed for the purchase of an American-made car. Buy a $12,000 car, for example, and the government would give you back $1,200 of your income taxes.