Monthly Archives: January 2024

According to Law360, two men promoted and sold abusive tax shelters for the last six years by instructing their clients to use sham trusts to hide business income and illegally deduct personal expenses such as family weddings, according to an indictment in a Colorado federal court in the case of U.S. v. Conner et al., case number 1:23-cr-00390, in the U.S. District Court for the District of Colorado.

Larry Conner, who operated The Business Solutions Group from his home in Frisco, Texas, and Timothy McPhee, who operated Private Banking Concepts from his home in Estes Park, Colorado, told their clients the trust arrangement was legal, according to the indictment, unsealed On September 25, 2023.

The pair were charged with conspiring to defraud the government and multiple counts of helping clients prepare false tax returns. McPhee and his wife, Marcia Predmore, were also charged with evading their own federal income taxes by employing the abusive trust structure that McPhee is accused of promoting. McPhee and Predmore pled not guilty in Colorado federal court.

The Indictment Said Conner And McPhee Peddled The
Tax Avoidance Strategy At Hotel Seminars Throughout Colorado And Texas Starting In 2017. Conner Also Taught Three "Advanced Workshops" On The Method In Cabo San Lucas, Mexico, From 2018 To 2019, The Indictment Said.

An email promotion for one Colorado seminar promised that attendees, who were typically charged attendance fees, would learn "how to recapture the money that is leaving your household never to be seen again without having to earn more," according to the indictment.

Conner And McPhee Charged Their Clients, Most Of
Whom Were Business Owners, A Fee Of $25,000 To $50,000
In Exchange For Helping Them Fraudulently Divert Nearly
All Of Their Income Through A Series Of Sham Trusts And
A Purported Charitable Foundation To Avoid Paying Taxes,
The Indictment Said.

 

The pair instructed clients to assign legitimate business income to a sham "business trust" to create the appearance that the client hadn't earned the income, the indictment said. That trust then distributed its income to a second sham trust, which distributed it to a third sham trust, according to the indictment.

"Each trust in the series reported deductions matching or exceeding its income, and the third sham trust purportedly 'donated' any remaining income to a private family foundation, which in turn 'loaned' the funds back to the client's business or business trust, tax free," the indictment said.

Conner and McPhee told clients to pay for personal expenses, including mortgage payments, dining costs and weddings, with money held in the trusts, the indictment said. They also told their clients to direct assets including real estate and vehicles to the trusts to avoid the appearance of ownership and to avoid paying income taxes on capital gains from selling the assets, according to the indictment.

Further, Conner and McPhee referred their clients to tax preparers and accountants who prepared financial documents consistent with the abusive strategy, the indictment said. One bookkeeper and tax preparer teamed up to market their services to Conner and McPhee's clients, according to the indictment.

The fraudulent federal tax filings cost the government tens of millions of dollars in tax losses, the indictment said.

Conner and McPhee went to lengths to convince their clients the tax avoidance strategy was legal, the indictment said, circulating their own materials responding to Internal Revenue Service warnings about abusive trust tax-evasion schemes. They also criticized outside accountants who questioned the legality of their strategy, saying the accountants "simply did not understand it," according to the indictment.

A government agent posing as a potential client caught McPhee in February 2022 when he agreed to meet her at a restaurant in Colorado and detailed how the shelter illegally circumvented taxes, according to the indictment.

"McPhee explained that there was '[n]o limitations whatsoever at all' on how a taxpayer could spend the money held in a trust and said that all the money spent from a trust bank account, for example on a pool, car, meals, gifts, entertainment, or home renovations, is a deduction," the indictment said.

In An Earlier Videoconference With The Agent, McPhee
Said He Knew Of A Structure To Reduce Her Tax Liability
By 95% To 98%, According To The Indictment.

McPhee and his wife used the abusive trust arrangement to conceal their own income from the government, the indictment said, creating four trusts and opening bank accounts for each and using them to pay personal expenses. The couple transferred multiple real estate properties to one of the trusts before selling, according to the indictment.

 

Read more at: Tax Times blog

Starting January 1, 2024, many business entities will be required to report information to the U.S.
government about who ultimately owns or controls them, including the business’ owners and officers. This new beneficial ownership information (BOI) reporting requirement is part of the Corporate Transparency Act (CTA), which aims to help law enforcement combat financial crime and protect the U.S. financial system from bad actors.

The CTA is part of the Bank Secrecy Act, a set of federal laws that govern financial transactions. As the CTA is not part of the tax code, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of Treasury.

Which entities are required to comply?

Entities organized in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Companies required to report under the CTA (a “Reporting Company”) include but are not limited to corporations, limited liability companies (LLCs), and other U.S.-registered entities, including many small and medium-sized businesses. Foreign companies required to report may include corporations, limited companies or similar entities formed under the laws of a foreign country and registered to do business in any U.S. state or tribal jurisdiction. However, there are several categories of exemptions under the Act (see the links below for more information).

What information needs to be reported?

Companies must report the full name of the Reporting Company, any trade name or doing business as name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number. Additionally, information on the entity’s Beneficial Owners and for new entities, the company applicants, is required.

A “Beneficial Owner” is any individual who, directly or indirectly, either: a) Exercises “substantial control” over a reporting company, or b) owns or controls at least 25 percent of the ownership interests of a reporting company.

A “Company Applicant” refers to the individual who filed the document that created or registered the company. The Company Applicant must only be disclosed for reporting companies created or registered on or after January 1, 2024.

When is the deadline to comply?

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. A reporting company created or registered on or after January 1, 2024 and before January 1, 2025 will have 90 days to file.

What are the penalties for non-compliance?

Penalties for non-compliance can be significant, resulting in criminal or civil fines and/or imprisonment. Not filing reports timely can result in a $500 per day penalty, up to $10,000, and imprisonment of up to two years.

Where can I learn more?

For more information, visit the beneficial ownership information (BOI) and Frequently Asked Questions.on the U.S. Department of the Treasury’s Financial Crimes Enforcement Network's (FinCEN) webpage. 

Read more at: Tax Times blog

An accountant blamed by federal prosecutors for pioneering the use of conservation easements as illegal tax shelters was sentenced to 25 years in prison January 9, 2024 following his conviction on all counts of a $1.3 billion tax fraud scheme that drew the first criminal prosecution of its kind.

Jack Fisher, a 71-year-old certified public accountant who once worked for the Internal Revenue Service and PwC, would be 96 by the time he is released under the sentence announced by the U.S. Department of Justice. Fisher's co-conspirator, attorney James Sinnott, 52, was also sentenced Tuesday and will serve 23 years in prison, the DOJ said.

The sentencing judge, U.S. District Judge Timothy C. Batten Sr., gave each man five years less than federal prosecutors asked for, but far more than Fisher and Sinnott requested. Fisher who told the court that his health was so poor any sentence meant life in prison said he deserved no more than five years behind bars.

Read more at: Tax Times blog

According to Law360, the U.S. government told a Pennsylvania federal court on January 8, 2024, that it should be allowed to collect on $903,000 in unpaid tax liabilities of the "Empire" television show actor Terrence Howard. 

Howard has yet to formally respond to a December 2022 complaint, the U.S. government argued in a motion for default judgment, with his lone attempt being leaving a voicemail for government counsel.

According to the complaint, Howard owes more than $550,000 in unpaid income taxes alone after failing to fulfill his liabilities for the 2010, 2011, 2016, 2017 and 2019 tax years, plus applicable penalties and interest.

Initial attempts to serve the complaint were unsuccessful until it was personally received by Howard's spouse at his California residence in July after multiple extensions, according to court records. 

Howard was again served in October, but failed to respond by the court-imposed deadline. Default was ultimately entered against the actor in December.

Have An IRS Tax Problem?

 

Read more at: Tax Times blog