International Automated Systems (fka IAUS)

[scion]

The financial structure of Defendants’ solar energy scheme is a sham and lacks economic substance.

56. Furthermore, the transactions that Defendants use to implement their abusive solar energy scheme lack economic substance and show that they know that their customers are not engaged in a trade or business related to the scheme and are not producing income from any legitimate trade or business related to the scheme.

57. For example, RaPower-3 does not require a customer to pay the full $3,500 purchase price for each lens at the time the customer signs the purported purchase agreement.

58. Instead, RaPower-3 allows a customer to pay $1,050 as a “down payment” for each lens.

59. But only $105 per lens is due to RaPower-3 within 15 days of signing the purchase agreement.

60. The remaining $945 is due to RaPower-3 in the following year, only after the customer has received the “tax refunds/savings” from buying in to Defendants’ solar energy scheme.

61. Thus, 90 percent of a typical customer’s down payment to RaPower-3 for a “lens” is funded by a wrongful refund paid out by the United States Treasury to the customer.

62. RaPower-3 itself “[f]inance[s] the rest” of the $2,450 difference between the $1,050 “down payment” and the full $3,500 price of each lens.

63. The lens itself is the only “collateral” that RaPower-3 takes as security for the $2,450 difference between the “down payment” and the full price of each lens.

64. RaPower-3 applies a mere 1 percent “simple interest” on the remaining $2,450, for a term of 30 to 35 years, which results in an annual payment from the customer of $82.

65. According to the purported purchase agreement, a customer is not obligated to pay the $82 annual payment until after the lens has been “installed and producing revenue” for at least five years.

66. The customer is not personally liable for the remaining $2,450. There is no provision for remedy in case a customer defaults, other than “repossession” of the lens by RaPower-3.

67. On information and belief, no lens has produced rental income for any customer.

68. On information and belief, the purported debt for the remaining $2,450 is a sham, designed to inflate a customer’s stated purchase price to enable the customer to claim large tax benefits as a result of buying “lenses” or otherwise participating in Defendants’ solar energy scheme.

69. Because most of the purchase price of the lens is funded with erroneous tax benefits and RaPower-3’s so-called “financing,” Defendants’ customers do not actually have to pay “out of pocket” to participate in the solar energy scheme. Instead, the tax benefits that a customer claims from participating will more than pay for the customer’s “down payment” for all lenses.

70. In fact, RaPower-3 “recommend[s] that you look at the taxes you paid last year and what you expect to pay this year in determining how many solar thermal lenses you should buy.” By using RaPower-3’s online calculator (or following RaPower-3’s detailed calculation instructions, also online), RaPower-3 claims that “you may be able to zero out your taxes while maximizing your solar business.”

71. Because Defendants claim that customers’ taxes can be “zeroed out” through the solar energy scheme, Defendants have encouraged customers to either reduce or eliminate their federal income tax withheld by their employers or their quarterly self-employment tax payments.

72. In 2013, RaPower-3 touted “success stories” on its website. None of the “success stories” involved the actual production of solar energy. Rather, all of the so-called “success stories” involved customers receiving the substantial tax benefits that Defendants promote.

73. RaPower-3 said “WHETHER YOU MAKE TONS OF MONEY [OR] JUST A LITTLE; EVERYONE MAKES MONEY WITH RAPOWER[-]3 AS LONG AS YOU ARE A TAXPAYER.”

74. One reason that “EVERYONE MAKES MONEY WITH RAPOWER[-]3 AS LONG AS YOU ARE A TAXPAYER” is that Defendants use the full $3,500 purchase price for each lens as the starting point for computing tax benefits like the depreciation expense deduction and the § 48 energy credit for which their customers purportedly qualify.

75. But the actual cost to IAS for each “lens” is less than $1,000.

Extract -
Doc 2 PDF file
https://www.scribd.com/doc/291081416/USA-v-RaPower-3-Et-Al-Doc-2-Filed-23-Nov-15