An unclean sweep; quite an education; Ferrari fever; and other highlights of recent tax cases.

Parkton, Maryland: Exec Brett Hill, of Parkton and Berlin, Maryland, has been convicted of 16 counts of failing to collect and pay over payroll taxes.

He was CEO of two telecommunications companies. From the second quarter of 2016 through fourth quarter of 2018, Hill withheld taxes from employees’ wages at one or both of his companies but did not file returns or pay those taxes over to the government, nor did he pay over his companies’ share. Instead, Hill paid himself a salary and paid other expenses.

Total tax loss to the U.S. exceeded $1 million.

Hill faces up to five years in prison for each count.

Philadelphia: Henry “Hank” Collins has admitted to conspiring to defraud the IRS by paying himself and his co-workers cash to avoid payroll taxes.

Collins worked at Davis Brothers Chimney Sweep & Masonry in Egg Harbor Township, New Jersey. He admitted that between Jan. 1, 2018, and April 30, 2024, he conspired with the spouse of the owner to defraud the IRS.

He used a commercial check casher to negotiate a substantial amount of the company’s gross receipts checks and used some of the resulting funds to pay himself and other employees, giving the rest of the cash to the business owner and spouse. Collins then provided false and misleading information to the company’s accounting firm that resulted in filing of payroll returns that omitted the employees paid in cash and their wages.

Collins also admitted filing false individual income tax returns for himself that concealed his cash wages.

He admitted that the conspiracy resulted in a tax loss of some $1 million.

Sentencing is Aug. 18. He faces up to five years in prison and a fine of up to $250,000. 

Lake George, New York: Michael E. Conner has been found guilty of defrauding investors and failing to file tax returns.

The jury voted to convict Conner of 22 counts of wire fraud and two counts of failing to file returns.

He was an inventor of household products and held patents on his inventions, such as a paint bucket called the Paint Caddy, a knife with a heated blade and a rotatable refrigerator shelf. Starting around 2008, Conner convinced other people to invest in his patents and lend him money that he said would help him market and sell his patents.

In 2020 and 2021, Conner fraudulently sought and obtained loans from people who believed they were lending money for business purposes, including to complete the sale of patents, to pay the IRS and to pay legal and accounting fees. Conner instead used the money for personal expenses and to fund his lifestyle, including outings to high-end restaurants in Saratoga Springs, concert tickets and expensive wine.

Since 2008, Conner has received, from investors and lenders, approximately $6 million; he has never sold a patent nor earned revenue from any of his inventions. His victims included residents of Virginia, North Carolina and Warren County.

The jury also convicted Conner of failing to file personal income tax returns for 2020 and 2021. He received more than $136,000 in loans in 2020 and more than $257,000 in loans in 2021. During this time, Conner had no savings and no job. The jury found that he had no intention of repaying the loans and treated them as his income and willfully failed to file federal returns that would have reported the money.

The jury acquitted Conner on one count of wire fraud and two counts of failing to file tax returns (2018 and 2019).

Sentencing is Aug. 14. On the wire fraud convictions, Conner faces up to 20 years in prison, a fine of up to $250,000 and a term of supervised release of up to three years. On the tax convictions, Conner faces up to a year in jail and a fine of up to $100,000.

Redkey, Indiana: Christina Moles, a.k.a. Tina Lashley, 50, has been sentenced to 18 months in prison to be followed by three years of supervised release after pleading guilty to wire fraud and aiding and assisting the making of a false federal income tax return. 

Between 2015 and 2021, Moles falsified 382 federal income tax returns for numerous clients without their knowledge. During this time, Moles was a tax preparer and frequently attracted clients by advertising that her business guaranteed large refunds. Many of her clients received refunds of $5,000 to $10,000 despite having modest incomes.

Moles falsely stated that her clients qualified for the American Opportunity Tax Credit, claiming that her clients incurred educational expenses to either Ivy Tech or Penn Foster online college. In fact, none of these clients had any education expenses and hadn’t attended either school. Also, neither institution provided a 1098-T.

The loss to the IRS was some $567,010, which Moles has been ordered to pay in restitution.

Philadelphia: Rodney Ermel, a Colorado man who owned and managed an accounting firm in that state, has pleaded guilty to conspiring to defraud the United States and to tax evasion.

Along with co-defendant Kenneth Bacon, Ermel provided accounting and tax prep services for Joseph LaForte and his entities. Ermel conspired with LaForte, Bacon and others to hide some $20 million in income through various fraudulent accounting practices, such as fabricating shareholder loans and bad-debt deductions.

Ermel also filed returns that he knew underreported taxable income by more than $20 million between 2016 and 2018. Ermel’s fraud caused a federal tax loss of more than $8 million.

He is the fourth defendant to plead guilty in this tax scheme. Sentencing is Sept. 3.

Palm Beach Gardens, Florida: Business owner Matthew Brown has been sentenced to 50 months in prison for not paying taxes withheld from his employees’ wages and for filing a false return.

Brown owned and operated multiple local businesses, one of which was Elite Payroll. Between 2014 and 2022, Brown did not pay more than $20 million in taxes withheld from the wages of employees of clients of Elite and from other businesses he controlled.

He charged clients the full amount of their tax liabilities but then filed false employment returns with the IRS that substantially underreported their liabilities, pocketing the difference. Brown used the money to buy real estate, including his multimillion-dollar home, a Valhalla 55 Sport Yacht, a Falcon 50 Aircraft and a large collection of cars including Porsches, Rolls Royces and 27 Ferraris.

Brown was also ordered to serve two years of supervised release and to pay $22,401,585 in restitution and a $200,000 fine to the United States.

Rep. Gwen Moore, D-Wisconsin, a member of the tax-writing House Ways and Means Committee, introduced legislation Thursday to expand the Section 199A Qualified Business Income deduction to provide a bigger benefit to the smallest businesses.

The Mom and Pop Tax Relief Act, H.R. 3249, would let businesses deduct $25,000 of their QBI, giving small businesses with lower revenues an advantage. The deduction would phase out at $200,000 of QBI for single filers and $400,000 of QBI income for joint fillers, providing targeted tax relief to small businesses.

The Tax Cuts and Jobs Act of 2017 created the Section 199A deduction, which allows businesses to deduct 20% of their pass-through income from their federal income taxes.Like many of the other provisions of the TCJA for individuals and small businesses, the QBI tax break is due to expire at the end of 2025. It was included in the TCJA as a way to provide a tax break for small businesses and pass-through entities like S corps and partnerships, after the TCJA provided a “permanent” tax cut for C corporations by reducing their top tax rate to 21%. 

However, critics of the TCJA point out that the QBI deduction disproportionately benefits the wealthy. Congress’s Joint Committee on Taxation estimates that more than half of the tax benefits of Section 199A continue to benefit millionaires, while the average small business with less than $100,000 of gross income receives a tax break of less than $2,000.

“Small businesses are the backbone of our economy but are feeling tremendous pressure in Trump’s economy, especially as they work with a tax code that favors wealthy businesses,” Moore said in a statement Thursday. “Section 199A is a prime example of how Republicans’ Tax Cuts and Jobs Act became a giveaway for the wealthiest Americans. Right now, this provision is working against our smallest businesses while rich individuals and high-grossing companies can exploit loopholes to further enrich themselves. If Republicans were truly serious about helping Main Street, they would support my legislation to ensure that mom and pop businesses can feel meaningful relief from the Section 199A deduction.”

The Mom and Pop Tax Relief Act is co-sponsored by Rep. Nydia Velazquez, D-New York, who serves as ranking member of the House Small Business Committee, as well as Rep. Betty McCollum, D-Minnesota, George Latimer, D-New York, Judy Chu, D-California, and Danny Davis, D-Illinois. 

However, with Republicans in control of both chambers of Congress and the White House and using a reconciliation procedure to steer their tax bill without relying on Democrats’ votes, the QBI bill is unlikely to be included in the massive legislation extending the TCJA and adding other tax breaks for tips, overtime pay and Social Security income.

Proponents of the bill point out that 74% of the current Section 199A pass-through tax deduction benefit goes to the wealthiest 5% of businesses. While the highest earning pass-through entities claimed an average deduction of over $1 million in 2021 due to Section 199A, pass-throughs with adjusted gross incomes below $100,000 took home an average deduction of just $1,997. The bill would significantly increase the tax savings for Main Street businesses, compared to the current 20% deduction. 

Advocacy groups praised the legislation. “Small businesses today are grappling with crippling uncertainty, due mainly to tariffs and the rollback of federal resources that support small firms,” said Small Business Majority CEO John Arensmeyer in a statement. “Now more than ever lawmakers must focus on offering benefits to the most vulnerable small businesses, and updating Section 199A in a way that helps the overwhelming majority of Main Street firms is one of the best ways to do that. We applaud Rep. Moore for her commitment to revising our tax code in order to deliver real results for most small businesses.”

“When the Tax Cuts and Jobs Act passed in 2017 during the first Trump Administration, the Main Street Alliance fought to make the U.S. Tax Code more equitable,” said Main Street Alliance executive director Richard Trent in a statement. “Unfortunately, policy makers at the time prioritized large corporations and the wealthy over entrepreneurs and growing businesses. Now is the time to correct course and better target tax relief to businesses who are just getting started, and trying to grow.”

House Speaker Mike Johnson said Republicans are discussing raising the state and local tax deduction cap to $30,000 — among other options — as the party seeks to resolve disagreements on the details of President Donald Trump’s tax package.

“I’ve heard that number, and I’ve heard others as well,” Johnson told reporters on Thursday.

“It’s still an ongoing discussion amongst the members, and I think we’ll find the right point,” he added. “I’m not going to handicap it because I’m not sure exactly what that is, but there’s a lot of analysis that’s going into it.”

Republicans are seeking a deal between members from New York, New Jersey and California — who had threatened to block the bill without a sufficient increase to the $10,000 cap on SALT deductions — and House leaders who are navigating the political realities of pushing an expensive tax bill through their narrow majority.

One lawmaker, New York’s Nick LaLota, immediately dismissed the $30,000 cap, saying that would not pass the House.

“I feel like I’m buying a used car and the dealer won’t name the price,” he said.

Tax committee lawmakers said they’re trying to come to a decision on the SALT deduction later Thursday.

Other members — New York’s Mike Lawler and Andrew Garbarino, New Jersey’s Tom Kean and Young Kim of California — have threatened to reject any tax package that does not raise the SALT cap sufficiently. Those members have been reticent to publicly say how high the deduction cap needs to be to earn their votes.

The SALT issue has been one of the most contentious for the House GOP to resolve as party leaders try to ram a multitrillion-dollar tax cut package through the House in May. The larger the cap adjustment is, the less money there will be for other tax cuts on the Republican agenda.

The House Ways and Means Committee is scheduled to consider that tax portion of the bill on Tuesday, an implicit deadline for lawmakers to come to an agreement on SALT.

Republicans are also sparring over spending reductions in the bill, including weighing cuts to Medicaid health coverage and nutritional programs for low-income households.

Conservative Ralph Norman said that if moderates get a $30,000 SALT cap, then they need to agree to even deeper spending cuts such as to Medicaid.