Accounting
Tax Fraud Blotter: Reaping and sowing
Share and share alike; fleecing the flock; United they fall; and other highlights of recent tax cases.
Shreveport, Louisiana: Tax preparer Sharhonda Law, 39, of Haughton, Louisiana, has been sentenced to 20 months in prison, to be followed by a year of supervised release, for tax fraud.
She owned and operated Law’s Tax Service, where she was the sole preparer. Law prepared and filed a client’s 2019 federal return that included a fraudulent Schedule F that claimed the client had farming income and had incurred farming expenses and was due a refund. In fact, the client owed taxes for that year. Investigation also showed that Law’s client did not have a farm, nor did they tell Law they owned or operated a farm and had never provided Law with any of the farming-related income or expenses on the Schedule F.
Law pleaded guilty in November to one count of aiding and assisting in making and subscribing a false return.
She made similar misrepresentations on six other returns for clients and falsified her own income on two of her personal returns; she also failed to file returns for other years. The total criminal tax loss was $123,455, which Law was ordered to pay in restitution.
Evansville, Indiana: Marcie Jean Doty, operations manager for a property management business, has been sentenced to five years in prison, to be followed by three years of supervised release, after pleading guilty to wire fraud, failure to file returns and filing false returns.
Between May 2017 and June 2022, Doty stole some $1,803,466.38 from her employer via unauthorized checks and ACH transfers. She executed 99 unauthorized transfers, totaling $503,151.59, and wrote 279 unauthorized checks to herself, totaling $1,300,314.79. The funds were transferred from her employer’s bank accounts to her personal ones. Doty entered false information in the business accounting software, representing that the checks were written to her employer instead of herself.
In January 2017, Doty agreed to purchase a 25% equity share in her employer’s business. Doty used some of the money she stole via the scheme to make payments towards her purchase of the share.
For tax years 2018 through 2020, Doty didn’t report the income derived from her scheme, failing to report some $786,280.70. She also didn’t file returns for tax years 2021 and 2022, failing to report some $1,006,983.84 in income.
She has been ordered to pay $2,517,343.05 in restitution.
Crofton, Kentucky: Marvin Upton has been sentenced to two years and three months in prison, to be followed by three years of supervised release, for fraud and tax offenses.
Upton, until recently the pastor at local Crofton Pentecostal Church, was sentenced for three counts of bank fraud and three counts of filing false returns. From 2013 to 2016, Upton defrauded one of his elderly parishioners, who suffered from dementia. During that same time, Upton submitted multiple false returns that omitted income from the fraud.
Jacksonville, Florida: Exec Daniel Tharp has pleaded guilty to failure to pay taxes.
Tharp was managing director for Hangar X Holdings LLC, where he had the responsibility to collect and account for the company’s trust fund taxes from employees’ pay. From October 2014 through December 2019, the company paid wages to employees and withheld these, but Tharp didn’t pay the money to the IRS. In total, he caused the company to fail to pay over $1.2 million in such taxes.
He faces a maximum of five years in prison.
Detroit: A federal court in Michigan has issued an injunction against tax preparers Alicia Bishop and Tenisha Green, barring them from preparing federal returns for others.
The court previously barred Alicia Qualls, Michael Turner and Constance Stewart from preparing federal returns for others and previously barred the business for which all of the preparers worked, United Tax Team Inc., and United Tax Team’s incorporator, Glen Hurst, from preparing federal returns for others.
Hurst, United Tax Team, Qualls, Turner and Stewart consented to the judgments.
According to the complaint, Hurst incorporated United Tax Team in 2016, and was its sole shareholder and corporate officer. Hurst hired the return preparers — including Qualls, Bishop, Green, Turner and Stewart — who worked at United locations in the Detroit area and prepared returns for clients that included false information not provided by clients.
The complaint alleges that Qualls, Bishop, Green, Turner and Stewart each repeatedly placed false or incorrect items, deductions, exemptions or statuses on returns without clients’ knowledge, including, in various cases, fabricated Schedule C businesses; fabricated education expenses; improperly claimed pandemic relief tax credits; improperly claimed head of household status; and fictitious child and dependent care expenses.
Akron, Ohio: Tax preparer Mustafa Ayoub Diab, 41, of Ravenna, Ohio, has been convicted of orchestrating a financial conspiracy that defrauded the U.S. government of pandemic benefits.
Diab was found guilty on 12 counts of theft of government funds, 12 counts of bank fraud, 11 of wire fraud, six of aggravated ID theft and one count each of conspiracy to commit wire and bank fraud and to launder monetary instruments.
Diab owned and operated a tax prep business where he and his co-conspirator, Elizabeth Lorraine Robinson, 33, also of Ravenna, developed a scheme to take advantage of the Pandemic Unemployment Assistance Program and the Paycheck Protection Program. From around June 2020 to August 2021, Diab submitted fraudulent applications for pandemic unemployment benefits and small-business assistance for many of his tax prep business clients.
Without their knowledge, he lied about their employment or about their being small-business owners. Investigators also discovered that Diab opened bank accounts in his clients’ names to receive the benefit funds via direct deposit, which the clients did not have access to, along with accounts in the names of Robinson and Diab’s sister. When the relief money was deposited into these accounts, he withdrew the funds in cash for his personal use, buying real estate and cars and taking international trips.
Diab submitted fraudulent applications in the names of nearly 80 victims, causing the federal government to pay out more than $1.2 million in pandemic benefits that were deposited into the various bank accounts that Diab controlled.
Sentencing is July 28. He faces up to 30 years in prison.
Robinson previously pleaded guilty to conspiracy, wire fraud, bank fraud and theft of government funds; she awaits sentencing and also faces up to 30 years in prison.
Columbus, Ohio: A federal court has permanently enjoined tax preparer Michael Craig from preparing returns for others and from owning or operating any prep business.
Craig, both individually and d.b.a. Craig’s Tax Service, consented to entry of the injunction.
According to the complaint, many tax returns that Craig prepared made false and fraudulent claims, including losses for fictitious Schedule C businesses; claiming costs of goods sold for types of businesses that cannot claim these costs and without supporting documentation; inventing or inflating expenses for otherwise legitimate Schedule C businesses; and taking deductions for both cash and non-cash charitable deductions that are either exaggerated or fabricated.
According to the complaint, the IRS estimated a tax loss of more than $3.1 million in 2022 alone.
Craig must send notice of the injunction to each person for whom he prepared federal returns or refund claims after Jan. 1, 2022.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
Processing Content
During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
Processing Content
Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
Processing Content
The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
