Accounting

Tax Fraud Blotter: Severe and widespread

Published

9 months ago

April 19, 2024

Speedy decision; trouble in paradise; diplomatic imbecility; and other highlights of recent tax cases.

Waxahachie, Texas: Tax preparer Bachary Rushid McGruder, 45, has been sentenced to three years in prison and ordered to pay more than $6.7 million in restitution to the IRS.

McGruder, owner of M&M Enterprises and Consulting, pleaded guilty in November to aiding and assisting in the preparation of false returns.

During tax years 2015 through 2018, he prepared more than 1,000 fraudulent returns for clients, using fictitious Schedule A deductions such as gifts to charity, unreimbursed employee expenses and home mortgage interest, false Schedule C business losses and false residential energy credits. He included the statements on returns without clients’ knowledge and had clients sign forms justifying the deductions and credits without explaining the forms’ contents.

McGruder charged exorbitant fees that were deducted from the refunds — as much as $2,800 for preparing a return.

The fraud resulted in a tax loss of $6.73 million.

Detroit: A federal court has permanently barred Annetta Powell and her seven tax prep-related businesses — Alliance Tax Services, Nationwide Tax Services, Tax Expert Stores, United Tax Services, Top Financial Specialists, United Financial Team Corporation and Speedy Tax Stores Corp. — from preparing federal returns for others and from owning or operating a prep business.

According to the court’s order, Powell, through her companies, operated up to five tax prep stores in Detroit and in Pontiac and Flint, Michigan, first under the name The Tax Experts and then, since 2021, under Speedy Tax Stores. The court found that the “harm caused by defendants’ fraudulent tax preparation scheme was severe and widespread, occurring across five stores for nearly a decade.” The court concluded that the defendants “prepared too many fraudulent tax returns with similar issues … for the pattern to have been random.”

The court noted that Powell refused to cooperate with the IRS investigation and took active steps to thwart the investigation by altering clients’ files and returns and manipulating the use of an EFIN. She could not obtain an EFIN because of her criminal record, so her stores used EFINs under someone else’s name. This misconduct, along with other past fraudulent conduct, led the court to determine that Powell “would likely find new ways to prepare fraudulent returns” if she were not permanently barred.

The court also ordered the defendants to disgorge $689,797.91 to the U.S., representing the ill-gotten gains from 2019 through 2021.

Honolulu: Former resident Sook Young Jung has pleaded guilty to conspiring to defraud the IRS by fraudulently obtaining a refund and then thwarting efforts by the agency to recoup it.

Jung conspired to file a false 2015 individual income tax return in her name. Jung’s co-conspirators created a fake tax form purportedly issued by a mortgage lender, which Jung attached to her return. The form falsely reported that Jung withheld more than $1.7 million in taxes. As a result, the IRS paid Jung a refund of $1,147,036.

After filing the false return and submitting the fake form, Jung tried to prevent the IRS from recovering the refund. For example, she deposited the refund check into a newly opened bank account and immediately withdrew most of the funds in cashier’s checks. She also paid, through nominees, one of her co-conspirators $500,000 for the co-conspirator’s assistance in obtaining the fraudulent refund.

Jung faces up to five years in prison as well as a period of supervised release, restitution and monetary penalties.

Rochester, New York: Resident Melanie Armstrong has pleaded guilty to wire fraud involving national emergency benefits, filing false claims against a government agency and transfer of a means of identification.

Between July 2020 and August 2021, Armstrong falsely applied for state unemployment benefits under the identities of others and fraudulently collected benefits in their names. She also collected unemployment benefits in her own name by falsely representing that she had no source of income. Armstrong received $131,400.10 in benefits unlawfully. She also applied for but did not receive additional benefits, resulting in a total intended loss of $250,916.

Between January 2019 and April 2023, Armstrong filed 19 false federal income tax returns for herself, family members and associates claiming false and inflated wages and false and inflated federal income tax withholdings. The IRS issued refunds to Armstrong and to others totaling $101,255.

Between January 2020, and April 2023, she also filed 17 false returns for herself, family members and associates with the New York State Department of Taxation and Finance, claiming false and inflated wages and false and inflated state income tax withholdings. Armstrong attempted to obtain $45,363 in fraudulent refunds but received only $18,758.

The charges carry a maximum of 30 years in prison and a $1 million fine.

Albuquerque, New Mexico: Resident Arturo Archuleta, 50, has been sentenced to two years in prison for tax evasion.

Between 2014 and 2018, Archuleta was the office manager for a chiropractic practice. During that time, he failed to report more than $200,000 in income to the IRS and diverted more than $500,000 in payments to the practice to a nominee bank account that he controlled; he did not report that income to the IRS.

Archuleta, who pleaded guilty in May, paid some $140,000 in outstanding tax obligations to the IRS before sentencing. He was also ordered to pay some $90,000 in restitution to Medicaid for expenses covered by Medicaid while he was evading income tax.

The judge also imposed a fine of $75,000 and ordered Archuleta to perform 100 hours of community service after he is released from prison and to enroll in a state self-exclusion program for gambling.

Houston: Jonathan Louis Lepow, manager of his father’s dental practice, has pleaded guilty for failing to pay taxes withheld from employee wages.

Jonathan Louis Lepow managed the clinic Kenneth A. Lepow DDS Inc., which had some 51 employees from 2015 to 2017. He was involved in financial decision-making at the clinic and oversaw accounting for and paying federal employment taxes. Lepow admitted that during the first quarter of 2015 he failed to pay $544,272 in IRS trust fund taxes collected from employees.

Lepow used the money to pay vendors and transferred funds to accounts of other entities he was establishing.

He has agreed to repay $495,847.

Urbana, Illinois: A jury has returned guilty verdicts on three offenses against Larry Dean Gibbs, of Pembroke Township, Illinois, for filing false federal returns.

In January 2017, Gibbs filed three federal income tax returns for the tax years 2012, 2013 and 2014, each falsely claiming that he had earned $10 million in annual income from the “Larry Dean Gibbs Estate.” He further claimed that the IRS withheld more than $3 million annually from his earnings and that he was entitled to refunds totaling more than $6.8 million.

Gibbs also claimed that he had changed his name to Mulumbua Humraukn El Taikem Bey and that he was the ambassador for the Al Moroccan Empire National Republic, which is not officially recognized by the U.S. At the time Gibbs filed the three false returns, he had just been released from prison for a prior conviction for filing a false federal tax return in 2005, when he had obtained an undeserved $66,282 refund.

Sentencing is July 17. Gibbs faces up to three years in prison and a $100,000 fine on each of the three counts.

Accounting

Tax planning in the Trump era: What accountants need to know

Published

5 minutes ago

January 24, 2025

Business Finance News

Following the Republican victory in the 2024 election and the reelection of President Donald Trump, tax reform and political changes are at the forefront of every accountant’s agenda.

The inauguration of Trump signals a dramatic shift in the tax landscape, with significant reforms expected to impact businesses and individuals. Accountants must remain vigilant, understanding how proposed changes may affect their clients and their own advisory strategies.

Tax considerations for construction project timing

Accountants must carefully evaluate how potential tax reforms under Trump’s presidency could affect the timing of taxpayer construction projects. Trump has expressed potential intent to cut Inflation Reduction Act spending and to roll back President Biden’s climate and energy policies. Changes to IRA credits, particularly those tied to renewable energy and infrastructure investments, may alter their availability or size, prompting the need for accelerated project completion to maximize benefits before credits phase out.

Potential tax change: For qualified assets, 100% accelerated bonus depreciation may return. Currently, the ability to claim a full depreciation deduction is being phased down and will be eliminated for most properties placed in service starting in 2027.

Adjustments to the bonus depreciation rates could provide further incentives to change the timing of construction projects, allowing taxpayers to take advantage of expanded accelerated depreciation for such projects in the future. Additionally, accountants should help clients weigh the trade-off between immediate cash tax savings from deductions, such as accelerated depreciation, and the long-term value of tax credits.

Accountants and taxpayers should weigh the potential for changes to existing credits and future depreciation rates and model these scenarios when considering the timing of substantial construction projects.

Considerations for business entity selection and pending tax reform

Proposed changes, including a reduced corporate tax rate, raise critical questions about entity selection and tax structure.

Potential tax change: Trump has proposed decreasing the corporate tax rate from 21% to 20%, and potentially to as low as 15% for companies that manufacture in the U.S.

The possibility of a flat 15% corporate tax rate has significant implications. Accountants should evaluate the tax impact of potential changes to the corporate tax rate when reviewing current pass-through entity tax structures and consider the total effective tax rate and other compliance issues. For example, lower corporate federal rates may offset the complexity of state taxes with varying pass-through entity tax regimes. Additionally, pass-through owner capital gains rates — including the net investment tax, potential limitations on deductions such as pass-through owner health insurance expenses, and payroll taxes, among other tax considerations — may necessitate a closer look at current tax entity selections.

The tax rate implications above also must factor in Section 199A, which offers a 20% deduction for qualified business income. Personal rate adjustments could affect the overall value of the deduction. Clients engaged in specified service trade or business activities generally are excluded above certain income thresholds. Those businesses that are not included in the SSTB category still must satisfy certain W-2 wage and or basis in property metrics to claim the deduction.

Tax reform hurdles: Political and policy challenges

The path to tax reform is full of obstacles that could shape the timing and substance of the legislation. A single comprehensive bill may face greater political resistance but offers holistic reform, while dividing reform into smaller bills could address priorities piecemeal but delay broader implementation.

Potential tax change: Trump indicated that he would reverse a provision of his 2017 tax cut package that limited Americans’ ability to deduct state and local taxes on their federal returns.

Negotiations around the state and local tax deduction are an example of policy differences that could shape both the legislation but also the timing. Beyond the political debate, reconciliation rules limit provisions to those directly affecting the federal budget as well as other limitations. Certain items on the tax reform agenda could be limited by the budget reconciliation process. Lastly, shifts in Congressional Budget Office scoring methods may impact tax reform dynamics.

Tax planning for a decreasing rate environment

A reduction in corporate tax rates offers planning opportunities and challenges. Accountants should model scenarios to recommend strategies to defer income or accelerate expenses to take advantage of rate reductions. Timing differences, such as accelerated deductions or deferred income recognition, can create permanent tax savings in changing rate environments.

Accountants must consider the impact of these adjustments on financial statements. Accountants should prepare for the revaluation of deferred tax assets and liabilities under new tax rates and communicate potential impacts on earnings and disclosures to stakeholders. Additionally, timing considerations will be at the forefront as the enactment date of potential future legislation will need to be considered for financial statement purposes.

Opportunities for accountants

The shifting tax landscape following the presidency of Trump presents numerous opportunities and challenges for tax professionals. By adopting a proactive, advisory-focused approach, accountants can add significant value to their clients. By not only understanding the intricacies of new tax laws but also providing strategic tax planning that aligns with clients’ financial goals.

Accounting

Macquarie staff swept up in tax dividend scandal face German criminal charges

Published

1 hour ago

January 24, 2025

Business Finance News

German prosecutors are preparing to bring the first criminal charges against staff who worked at Macquarie Group Ltd. over the Cum-Ex tax scandal, in a signal that officials are ramping up their years-long probe.

Prosecutors based in Cologne plan to initially charge a few of the bankers who were working at the lender before 2012 when the trading occurred, according to people familiar with the matter. Macquarie has previously said that as many as 100 people were swept up in the probe.

A spokesman for Cologne prosecutors confirmed that they’re planning to issue new indictments but declined to disclose the names or banks involved. Macquarie declined to comment.

Cum-Ex was a controversial trading strategy designed to obtain duplicate refunds by taking advantage of how dividend taxes were collected. Germany stopped the practice in 2012 and is now probing about 1,800 suspects from across the global financial industry. More than 20 people have been convicted in German courts for their part in Cum-Ex.

Investment bankers at Macquarie’s London office were central to Cum-Ex deals and have been in prosecutors’ cross-hairs for years. In the fallout from the scandal the lender has already settled two separate matters involving German dividend trades between 2006 and 2009. The bank paid €100 million ($105 million) to German authorities as part of this agreement.

The number of suspects in the German Cum-Ex probes linked to Macquarie has continually increased. In 2018, Macquarie said about 30 staffers were targeted. In 2020, the bank disclosed that the number had climbed to 100, most of whom are no longer at Macquarie. In a 2024 company report, the bank reiterated that number, adding that the lender has provided for financial risks out of the case.

Under German law, companies can’t be charged with crimes but prosecutors can use a related form of proceeding to add them as parties to criminal cases. That is how investigators targeted VW, when the automaker settled with prosecutors over the diesel scandal for €1 billion in 2018.

British hedge fund trader Sanjay Shah was sentenced to 12 years in prison by Danish judges in December for orchestrating the same scam in Denmark, the heaviest jail term handed down so far in Europe.

Charges against Macquarie bankers have been expected for years but Cologne prosecutors repeatedly delayed decisions. The pandemic slowed law enforcement on multiple fronts, including reduced court capacity.

However, the Cologne prosecutors office, which is investigating suspects in 130 different probes, has also struggled with its own work management. This week Tim Engel, the new head of Cum-Ex prosecution, told reporters this broad approach is taking a toll on investigators who have to wade through enormous amounts of seized documents.

After more than a decade of investigations, Cologne prosecutors are now also facing the prospect of running out of time to prosecute, at least in some of their cases. But only very few proceedings against individual suspects will have to be dropped completely, Engel said.