Employment grew by 139,000 jobs in May, the U.S. Bureau of Labor Statistics reported Friday, while the unemployment rate remained unchanged at 4.2%.

Employment continued to grow in the health care, leisure and hospitality and social assistance sectors, but the federal government continued to lose jobs as the Trump administration kept up its efforts to slash the workforce. The professional and business services sector lost 18,000 jobs in May, but added 3,100 in accounting, tax preparation, bookkeeping and payroll services. 

Average hourly earnings increased 15 cents, or 0.4%, to $36.24 in May. Over the past 12 months, average hourly earnings have increased 3.9%. 

“Really only two sectors made up the bulk of all job growth — health care and social assistance (+78K) and leisure and hospitality (+48K),” said Andrew Flowers, chief economist at Appcast. “The ‘diffusion index’ (which measures the breadth of job growth) fell near the lowest point of this cycle. Beyond those sectors, there were signs that professional and business services job growth has weakened further, with the three-month moving average now negative. Moreover, the DOGE-led effort to trim government bureaucrats is having real effects, with a -22K job contraction in the federal workforce.”

As part of those cuts, the U.S. Bureau of Labor Statistics itself has been cutting back on its collection of consumer data for measures such as the Consumer Price Index, which could affect the reliability of some of its data. The BLS has also been getting lower response rates in recent years to its surveys, which could affect the reliability of its data. “They’re getting a lot less data than they used to, so those things add up to probably some volatility in the numbers that come out,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex.

Bank job; the magic is gone; not a beautiful day in the Neighborhood; and other highlights of recent tax cases.

Washington, D.C.: CPA Timothy Trifilo has been sentenced to 20 months in prison for making a false statement on a mortgage loan application and for not filing an income tax return.

Trifilo worked in compliance for several large accounting and finance firms and recently was managing director at a tax firm where he specialized in transaction structuring and advisory service, tax compliance and tax due diligence.

For a decade, he did not file federal income tax returns nor pay taxes owed despite earning more than $7.7 million during that time. He caused a tax loss to the IRS of more than $2 million.

In February 2023, Trifilo sought to obtain a $1.36 million bank-financed loan to purchase a home in D.C. and was working with a mortgage company. After the company told him that the bank would not approve the loan without copies of his filed returns, Trifilo provided fabricated documents to make it appear as if he had filed federal returns for 2020 and 2021. On these returns and other documents, Trifilo listed a former colleague as the individual who prepared the returns and uploaded them for filing with the IRS. This individual did not prepare the returns, has never prepared returns for Trifilo and did not authorize Trifilo to use his name on the returns and other documents.

The bank approved the loan and Trifilo purchased the home.

Trifilo, who previously pleaded guilty, was also ordered to serve two years of supervised release and pay $2,057,256.40 in restitution to the IRS.

New York: Tax preparer Rafael Alvarez, 61, of Cortland Manor, New York, has been sentenced to four years in prison in connection with a decade-long, $145-million tax fraud.

Alvarez, a.k.a. “the Magician,” who previously pleaded guilty, oversaw the filing of tens of thousands of federal individual income tax returns that included false information designed to fraudulently reduce clients’ taxes. From around 2010 to 2020, Alvarez was the CEO, owner and manager of ATAX New York, also d.b.a. ATAX New York-Marble Hill, ATAX Marble Hill, ATAX Marble Hill NY and ATAX Corporation. This high-volume prep company in the Bronx, New York, prepared some 90,000 federal income tax returns for clients during this period.

Alvarez both prepared returns for clients and recruited, supervised and directed other personnel who in turn prepared returns. He oversaw what authorities called “a sweeping fraudulent scheme” where he and his employees submitted false information on clients’ returns. This information included, among other things, bogus itemized tax deductions, made-up capital losses, phony business expenses and fraudulent tax credits.

Alvarez recruited to ATAX and personally trained “impressionable, easily intimidated” workers. When some employees questioned Alvarez about his fraudulent tax prep, he threatened these employees about reporting his scheme.

He deprived the IRS of $145 million in tax revenue. 

He was also sentenced to three years of supervised release and ordered to pay the IRS $145 million in restitution and forfeit more than $11.84 million.

Philadelphia: Tax preparer James J. Sirleaf, 65, of Darby, Pennsylvania, has pleaded guilty to a multiyear scheme to help clients file false income tax returns to fraudulently increase their refunds, as well as to filing false personal income tax returns for himself.

Sirleaf, who previously pleaded guilty, was the sole owner and operator of Metro Financial Services; he prepared false and fraudulent 1040s for clients for at least tax years 2016 through 2019. On the returns he included false deductions, business expenses and dependent information.

He also filed false returns for himself for tax years 2017 through 2019, failing to fully report his income.

Sirleaf caused a tax loss to the IRS of $219,622.

Sentencing is Sept. 3.

Summerfield, North Carolina: William Lamar Rhew III has pleaded guilty to wire fraud, money laundering, securities fraud, tax evasion and failure to file returns in connection with a $20 million Ponzi scheme.

From November 2017 to December 2023, Rhew defrauded at least 117 investors of at least $24 million. He induced victims to invest with his company, Chadley Capital, which would allegedly buy accounts receivable at a discount, sell them for a profit and provide consistently high rates of return. Rhew touted the company’s increasing deal flow and underwriting standards and claimed $300 million in transactions in 2023, consistent returns exceeding 20% per year and nearly 74% total growth over 24 months.

All Rhew’s representations were false. Instead of investing victims’ funds, Rhew used the money on personal expenses, including the purchases of a boat, a beach house and luxury cars, and to make “interest” and “withdrawal” payments to other victim-investors.

For 2018 through 2022, Rhew willfully failed to report nearly $9 million in income to the IRS.

He has agreed to pay almost $14.9 in restitution to the victims and $3,056,936 to the IRS.

Sentencing is Aug. 22. Rhew faces up to 20 years in prison, supervised release of up to three years and monetary penalties.

Miami: In related cases, three tax preparers have pleaded guilty to tax crimes connected to a scheme to prepare false returns.

Franklin Carter Jr., of Sanford, Florida, pleaded guilty to conspiring to defraud the U.S. and to not filing returns. Jonathan Carrillo, of St. Cloud, Florida, pleaded guilty to conspiring to defraud the U.S. and assisting in the preparation of false returns.

Diandre Mentor has pleaded guilty to conspiring to defraud the United States by filing false returns for clients.

From 2016 to 2020, Carter and Carrillo owned and operated Neighborhood Advance Tax, a tax prep business with a dozen offices throughout Florida. Mentor worked there between January 2017 and 2019. The conspirators inflated client refunds by fabricated deductions and held periodic training to teach Neighborhood employees how to prepare fraudulent returns.

In 2020, Mentor and his co-conspirators also started Smart Tax & Finance, which  expanded to 12 franchise locations throughout South and Central Florida. The next year, Carter, Carrillo and the co-conspirators started Taxmates, which operated out of the same offices that Neighborhood had used. Both firms prepared false returns for clients; many of those returns included false deductions.

The three also continued to teach franchise owners and employees how to prepare false returns for clients. In addition, Carter did not file personal tax returns for 2019 through 2021.

Carter and Carrillo caused a tax loss to the IRS exceeding $12 million. Mentor caused a tax loss to the IRS totaling $3,090,077.

Several co-conspirators have also pleaded guilty, including Abryle de la Cruz, Emmanuel Almonor, Adon Hemley and Isaiah Hayes.

Carter and Carrillo each face up to five years in prison for the conspiracy charge. Carter faces up to a year for each failure to file a return charge; Carillo faces a maximum of three years for each charge of assisting in the preparation of a false return; Mentor faces up to five years in prison. All three also face a period of supervised release, restitution and monetary penalties.

Hourly earnings growth for small business employees dropped to a four-year low at 2.77% in May, while job growth was flat, according to payroll company Paychex.

The Paychex Small Business Employment Watch, which tracks U.S. business with fewer than 50 employees, found that three-month annualized hourly earnings growth fell to its lowest level in May (2.45%) since December 2020, when it was 1.66%.

“There seems to be a very limited amount of dynamism in small businesses right now,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “We’re not seeing blockbuster or torrid hiring, but we’re also not seeing major layoffs either. They’re in a frozen state. They don’t want to take any risks.”

The Midwest has represented the strongest region for small business employment growth for the past year, while the West continues to lag all regions and reported an index level below 100 on Paychex’s Small Business Jobs Index for the 14th consecutive month in May. 

“The Midwest is doing well, and the coasts are lagging a little bit,” said Fiorille. 

Construction dropped 0.68 percentage points to a jobs index of 99.69 in May, marking its lowest level since March 2021. Job growth in the leisure and hospitality industry remained in last place among sectors for the fourth month in a row at 98.18 in May.

Uncertainty over tariffs and the massive tax bill in Congress seem to be holding back small businesses, and accountants should keep a close eye on developments to advise their small business clients. “That’s the ballgame right now for everybody to watch,” said Fiorille.