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Tax Fraud Blotter: Rampant self-dealing

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Makin’ a list; caught again; back to school; and other highlights of recent tax cases.

Washington, D.C.: Recent IRS Office of Professional Responsibility disciplinary sanctions include censure, suspension or disbarment from practice before the IRS. Individuals disciplined include (all dates this year):

  • California (all CPAs): Vincente Alvarez, Chatsworth, and Michael D. Robinson, San Francisco, indefinite from April 29; Grigor Demirchyan, Granada Hills, and Todd W. Beutel, Thousand Oaks, indefinite from May 8; and Tiffany C. Detinne, Carmichael, and Bernard Turk, West Hills, indefinite from May 28.
  • Florida: CPA Paul S. Mills, Key West, indefinite from May 8.
  • Massachusetts: Attorney Paul S. Hughes, Wellesley, indefinite from April 29.
  • Michigan: Attorney Brian P. McMahon, Ionia, indefinite from April 3.
  • Missouri: CPA Justin L. Strauser, Sullivan, indefinite from May 28.
  • New Jersey: Attorney James R. Lisa, Jersey City, indefinite from May 8. 
  • Pennsylvania: CPA Daniel J. Carney, Shawnee on Delaware, indefinite from April 2.
  • Tennessee: CPA Richard T. Brown Jr., Brownsville, indefinite from May 8.
  • Texas: CPA David D. Renken, New Braunfels, indefinite from April 2; Attorney Pejman Maadani, Houston, indefinite from May 8.
  • Virginia: CPA Carol A. Jones, Ruckersville, indefinite from May 15.

Reinstated to practice before the IRS effective in April were CPA Robert S. Damiano, of Bridgewater, New Jersey, and attorney Charles E. Hammond III, of Katy, Texas.

San Francisco: Resident Dwayne Lorenzo Richardson has been found guilty of tax evasion.

Richardson evaded his personal income taxes for 2017 to 2019 by claiming to owe only some $28,496 in tax when he’d made more than $1.2 million as a software engineering manager. He declared more than $1.1 million in medical expenses, overstating those expenses by more than $945,000.

Richardson received tax refunds totaling over $165,000 for the three charged tax years, then lied to an IRS agent in two audit interviews, stating that the $1.1 million of medical expenses were related to an appendectomy. Richardson paid no more than a few hundred dollars for treatment related to the appendectomy, which took place in 2010.

As he explained to one of his representatives in the tax audit, Richardson deducted nonexistent medical expenses from his taxes for multiple years because he had not been “caught” the first time he did it.

Brick, New Jersey: Business owner Gerard Artz has pleaded guilty to failing to collect and pay over employee taxes.

Artz owned and operated a construction company in Brick and New York City. Beginning around 2016, his company withheld employment taxes from employees’ paychecks and did not remit those employment taxes to the IRS. From 2016 to 2020, Artz and his company failed to collect and pay over $937,943 in employment taxes.

He faces up to five years in prison and a $250,000 fine; Artz has agreed to pay $937,943 in restitution. Sentencing is Feb. 5.

Encino, California: Tax preparer Bijan Kohanzad, 63, of Calabasas, California, has been sentenced to three months in jail and ordered to pay a $40,000 fine for helping a client file a return that underreported income, according to published reports.

From mid-2015 and to May 2017, Kohanzad, who pleaded guilty earlier this year, reportedly helped and counseled a client to reduce taxable income by falsely increasing business expenses.

The two years’ federal tax loss that Kohanzad caused reportedly totaled some $401,436.

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New York: Martin Handler, of Brooklyn, has been sentenced to 58 months in prison for defrauding the federal Head Start program, for stealing more than $1 million from his federally funded childcare company, and for tax evasion.

Between 2017 and August 2021, Handler secretly “owned” and exercised control over the nonprofit Project Social Care Head Start Inc. The U.S. Department of Health and Human Services, which administers the Head Start program, annually granted Project Social Care millions of dollars to be used exclusively on the program and from which earning a profit is prohibited. Handler conspired to submit multiple fictitious documents to HHS that fraudulently asserted Project Social Care had an independent board and had in place controls to guard against fraud, waste and abuse. In fact, it had neither an independent board nor sufficient controls in place, and Handler steered Head Start funding to his own for-profit companies through what authorities called rampant undisclosed self-dealing.

Between April 2019 and January 2023, as majority owner of New York City Early Learning Co., a for-profit that also received Head Start grants, Handler misapplied and misappropriated corporate treasury funds to, among other things, repay personal loans and finance the leasing of luxury vehicles for the benefit of two members of Early Learning’s Head Start board.

In 2021 and 2022, Handler falsely reported to the IRS $2 million in charitable contributions, evading taxes of at least $740,000.

Handler was also sentenced to three years of supervised release, ordered to pay a $200,000 fine and to forfeit $1,156,068.10, and to pay $1,156,068.10 in restitution to HHS and $740,000 in restitution to the IRS.

Miami: A U.S. district court has issued a permanent injunction against tax preparers and brothers George and Luis Brito and their businesses.

The injunction bars George Brito from preparing federal income tax returns, working for or having any ownership stake in any prep business, assisting others in preparing returns or setting up business as a preparer and transferring or assigning customer lists to any other person or entity. The court similarly enjoined Luis Brito from preparing income tax returns for individuals. The Britos consented to the injunction.

The complaint alleged that George and Luis Brito owned or controlled Brito and Brito Accounting USA Inc. and prepared returns for clients that claimed various false or fabricated deductions and credits, including fabricated residential energy credits, false and exaggerated itemized deductions, and fictitious and inflated business expenses.

The order requires Luis Brito to inform his clients that he has been permanently enjoined from preparing returns except for certain types of business forms, including those reporting payroll, unemployment and corporate income taxes. The IRS can make unscheduled and random visits to Luis Brito’s business; he must also complete at least 24 hours of tax prep education by Dec. 31.

Union, New Jersey: Tax preparer Emmanuel Amenyo, 59, admitted assisting in the preparation of fraudulent returns, resulting in improperly large refunds.

From 2018 through 2021, Amenyo ran a tax prep business in which he prepared and submitted individual federal returns for clients. He filed numerous false returns and subscribed to false returns with respect to his own taxes.

These returns falsely claimed charitable contributions, itemized deductions, child and dependent care expenses, and other qualified expenses to which Amenyo and his clients were not entitled, causing a tax loss of $250,466.

Amenyo faces up to three years in prison and a $250,000 fine. Sentencing is April 1.

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Accounting

On the move: Whitley Penn names next CEO

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IFAC offices

Jean Bouquot, previously deputy president, was elected president of the International Federation of Accountants to serve a two-year term through November 2026, and Taryn Rulton was elected deputy president. The IFAC also appointed to the board: Josephine Su Han Phan, Michael Niehues, Patricia Stock, Mark Vaessen, Lei Yan and Ahmad Almeghames. (Read the full story.) In other news, IFAC selected Sheila Fraser of Canada and Andreas Bergmann of Switzerland as the 2024 recipients of the IFAC Global Leadership, recognizing their outstanding contributions to public sector accounting.

Comedian Lil Wenker announced she is touring her solo show, “Bangtail,” a clown western about a cowboy-turned-accountant searching for his purpose, based on her accountant  father, which includes a performance Nov. 22 in New York. 

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Big tax changes promised in Trump administration

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President-elect Donald Trump offered up a long list of promises during his campaign, and next year will bring a major test with the upcoming expiration of many of the provisions from his first administration’s Tax Cuts and Jobs Act of 2017.

“No one has a crystal ball on what’s going to happen here, but certainly it’s a little bit clearer based on a Trump victory than it would have been based on a Harris victory,” said Brian Newman, a tax partner at Top 25 Firm CohnReznick in Hartford, Connecticut. “Obviously the big point is going to be either to extend or to make permanent TCJA provisions.”

Trump has also called for lowering the corporate tax rate, which was supposed to be made permanent with the TCJA. He has proposed to lower it to 20%, or 15% for companies that manufacture their products in the U.S. 

“Going from 21% down to 20% may be a much easier sell than layering on something that would get the corporate rate down to 15%,” said Newman.

Trump has also called for bringing back 100% bonus depreciation. “Right now the bonus rate is at 40% and scheduled to go down to 20% next year,” Newman continued. “There’s been a push to get that back up to 100%. If that occurs, we’ll be talking to our clients for year-end tax planning about deciding on whether to delay placing an asset in service a month or two if, in fact, we think that we’re going to go back to 100% bonus, versus buying something this year and placing it in service this year. There are always transition rules. That’s something that we have to be cautious about. That’s something that is going to be closely watched, because it could have a significant impact on clients.”

On the other hand, parts of the TCJA could be jettisoned. Trump has also called for eliminating the act’s $10,000 limit on state and local tax deductions, also known as the “SALT cap,” for individuals, or raising it. 

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Former President Donald Trump speaks during a campaign rally in Mason City, Iowa.

KC McGinnis/Bloomberg

“It’s an easy discussion to tell clients, if you have property taxes to pay, you’re probably better off paying the property taxes January 1 versus December 31 in the hopes that something does get passed,” said Newman. “You might get a benefit for it, versus now in 2024 you know you’re not going to get a benefit.”

The treatment of R&D expenses involves another provision of the TCJA that could be eliminated. “The last couple of years, taxpayers have had to capitalize their R&D costs and then amortize them over a five-year period,” said Newman. “That’s had a significant impact on compliance and the bottom line of taxable income. Trump has said that he would like to get those expenses currently deductible again, which would be helpful for businesses that have R&D expenses. 

The Section 163(j) limitation on business interest could be another area where TCJA provision would be eliminated. “Currently, your adjusted taxable income does not include adding back depreciation and amortization like it did in the first few years of the TCJA. President-elect Trump has said that he would be in favor of going back to an EBITDA calculation so that you can add back your depreciation and amortization, which would make the limitation less painful for clients. That’s another area that I think you’re going to see some tax law changes.”

Some of these business tax changes were passed by the House earlier this year as part of the Wyden-Smith Tax Relief for American Workers and Families Act of 2024 but never got through the Senate because of disagreement over other provisions, such as expansion of the Child Tax Credit.

Trump has also called for not taxing income from tips, Social Security and overtime, as well as eliminating taxes on firefighters, police officers and members of the military.

However, that could encourage people to reclassify their income as the tax-exempt kind. 

“It will always be interesting to see exactly how those things work and how they’re calculated, because everyone’s always looking to maximize what income is not subject to tax or may have lower tax rates,” said Newman. “But you have to make sure that you know, things are properly defined, and that ultimately, you know, we have a clear guidance on what the calculation should be.”

Trump has also called for eliminating the stock buyback excise tax for public companies that buy back their own shares of over $1 million in a taxable year. “Right now, there’s a 1% tax on that,” said Newman. “The Biden administration has proposed increasing that to 4%, but President-elect Trump has said that he would be in favor of eliminating that tax.”

He believes the qualified business income deduction under the TCJA will also be closely watched, “People would be looking for that to either get extended or made permanent,” said Newman. “That’s a 20% deduction on certain flow-through income, which has been very beneficial to people who it applies to. Unfortunately, it does not apply, for the most part, to accountants and other professional services organizations.”

Trump has also called for doubling the standard deduction as it was in the TCJA. That could cause even fewer people to itemize their deductions. “There’s a good amount of people who don’t itemize because the SALT cap is limited to $10,000 and then if you don’t have large home mortgage interest or other itemized deductions, you’re not getting over the standard deduction threshold as it currently stands,” said Newman. “If you double the standard deduction, there will be less and less itemizers, and those types of deductions don’t become as valuable.”

That may prompt donors to reduce their charitable contributions if they can’t itemize the deduction.

Trump has also called for other tax breaks, such as tax credits for family caregivers taking care of parents or loved ones, and allowing those who buy an automobile made in the U.S. to write off the interest on their car loans.

All those tax breaks may prove difficult for states that rely on income taxes from their residents and can’t afford to let their deficits run wild. “Year after year, the state tax liabilities on transactions and income are becoming more and more a larger component of the total tax burden of both companies and individuals,” said Newman. “One of the things that states like to do is decouple from federal provisions. We always want to keep in mind, even if you get new provisions at the federal level, if they’re not already decoupled, you may get decoupled on provisions for the state. For instance, if President-elect Trump is successful in exempting, say, overtime pay, you may get a lot of states decouple from that, and the states will still tax that.”

Trump’s tax policy will also depend on what Congress does and how much control Republicans will be able to exercise, especially in the House.

“Tax was not the focal point of the campaign, and when it did emerge as an issue, former (and future) President Trump presented tax policy ideas largely in broad strokes, though he also had no small number of new ideas for voters to consider,” said Jonathan Traub, managing principal and tax policy group leader at Deloitte Tax LLP, in a statement. “Of course, tax legislation generally originates in Congress, not the White House, so any new tax laws enacted will bear the imprint of the legislative branch with its many competing interests and priorities. And, just as importantly, the ability of the Republicans to use budget reconciliation to fast-track major tax and spending bills to the White House depends on the outcome of a handful of uncalled House races around the country.” 

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From the campaign trail to the Tax Code: Taxes under Trump

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With the election only just completed, tax preparers aren’t yet sure how much it will change the tax landscape, but they do know there’s a different set of leadership in place with a different approach to tax, the tax burden and tax administration.

“It will be curious to see how much the balance shifts,” observed Kelly Myers, an advisor with Myers Consulting Group LLC, and formerly a career IRS officer with 30-plus years of experience. “The Republicans won’t have a super-majority, so there will still be a give and take in their congressional negotiations. If you have some Republicans who break stride with a proposal, they won’t be able to force their way through. Republican legislators are less likely to operate in lock-step, as the Democrats do.”

“People will be watching as they move forward on the Tax Cuts and Jobs Act; the biggest thing is the SALT limitation with its $10,000 cap,” he continued. “There have been discussions on it, particularly as it creates a marriage penalty — a married couple filing jointly has the same $10,000 cap as a single filer. So there should be some palate for action, creating a $20,000 cap for a married couple.”

Donald Trump, left, and Melania Trump on Nov. 6.
Donald Trump, left, and Melania Trump on Nov. 6.

Eva Marie Uzcategui/Bloomberg

Also, there is wide support for a renewed R&D credit to operate on a dollar-for-dollar basis, instead of a five-year amortization procedure, according to Myers. There may be a stronger appetite to modify this with a Republican House in January. The bonus depreciation that was passed to act as a stimulant may not fare so smoothly, since, with inflation a continuing issue, it may not be desirable to stimulate the economy. 

Another TCJA issue is the qualified business income deduction, Myers remarked. “It will be hard to touch that since it was put in the legislation to create equality with the corporate tax rate,” he said. “If they had a super-majority, they could ram through their dream provisions, but it’s probably a good thing they don’t — one party can’t ram something through in one direction or the other. We’ll know more about the party priorities once the cabinet gets settled.”

Theory versus practice

“Trump said a lot of things during the campaign that may be difficult to implement,” according  to Bill Nemeth, president and education chair of the Georgia Association of Enrolled Agents. “Many things he will not have direct control over. He has said that any of the $80 billion in funds for the IRS that hasn’t been spent will be seized. He would also do that with the CHIPS Act, where they’re building a chips factory in Upstate New York. It’s questionable how much of this he can accomplish. At this point it’s all speculation. The net is that he made a lot of promises during the campaign that he may not be able to bring to pass.”

“As one who prepares a lot of individual returns, the suggestion by Trump of repealing the tax on Social Security would make things easier for a lot of people and make it easier to do returns for retirees, but it’s not clear how it would work in practice,” said Stephen Mankowski, tax chair at the National Conference of CPA Practitioners. “And making overtime pay nontaxable would likewise add to the complexity. Payroll systems would become very complicated. Companies that have hourly workers would be more apt to get workers willing to work overtime when they know they wouldn’t be taxed on the additional pay.”

One of the complications of the “no tax on tips” proposal, he added, is the situation where tips are below the minimum wage, with the employer obligated to make up the difference where a worker has a slow night and brings in little in tips. 

“Our hourly rate is $7.65,” he said. “It hasn’t moved in years. If a server or bartender gets paid $3.00 per hour, the business makes up the difference at the end of the shift. That would be difficult where they are only taxed up to $7.65. And issues would arise as to how it would affect the Social Security base, and how much income could be labeled tip income. Hopefully with the new Congress they will do what they can to  insure the IRS has proper funding. They’re looking at modernizing the IRS and they need sufficient funding to do that — additional funding to the IRS can pay for itself many times over.”

One casualty of the Republican victory is likely any immediate attempt to tax unrealized gain, according to Gil Baumgarten, chief executive of Segment Wealth Management in Houston. 

“You can only have an income tax on something that is income. Unrealized gain is not income,” he said. “Overall, the election was good for business — that’s the reason the market went up more than 1,500 points the day after the election. I can’t think of a better approach to government. Elon Musk is right — sooner or later we’ll run out of money. There is so much government waste. I would love to see 90% of government workers laid off. There’s nothing that government can do that the private sector cannot do better. Trump understands this.”

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