The federal government has sued a Kirkland couple, alleging that their Edmonds-based businesses sold illegal tax shelters to small-business owners for the past five years. According to the lawsuit...

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The federal government has sued a Kirkland couple, alleging that their Edmonds-based businesses sold illegal tax shelters to small-business owners for the past five years.

According to the lawsuit, filed Monday in U.S. District Court in Seattle, John and Candace Sinclair created trusts typically used by churches and falsely told clients they would be exempt from federal income tax, federal officials said. But the “ministerial” trusts had no religious affiliation and didn’t protect anyone from federal taxes, the lawsuit alleges.

“The ‘trusts’ that defendants create for their customers are shams, devoid of economic substance,” the lawsuit alleges.

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The Sinclairs could not be reached yesterday.

The government is seeking an injunction to stop the couple from selling the trusts.

The couple founded two Edmonds companies, Director of Integrity Ministries and Director of International Integrity Foundation, to parcel out the trusts, according to the suit. The groups were formed as “corporations sole,” a designation typically used by churches, even though they had no religious function, the lawsuit alleges.

The Sinclairs also conducted business under the unregistered name Fortress International, federal officials say.

Using “corporations sole” designations and trusts to illegally avoid taxes is a common tax-avoidance scheme, according to the Internal Revenue Service.

Federal officials issued a news release about the lawsuit but declined to comment further.

The court documents allege that the Sinclairs promoted their ministerial trusts and other fake trusts through word of mouth, seminars and fliers.

The lawsuit says the Sinclairs charged between $4,000 and $8,000 for a trust package, which generally included four trusts with preselected names and valid employer-identification numbers obtained from the IRS.

Ashley Bach: 206-464-2567 or abach@seattletimes.com