Playing defense; shocking stuff; to the cleaners; and other highlights of recent tax cases.

Washington, D.C.: Thomas G. Ehr, a longtime associate of a former defense contractor, has pleaded guilty to conspiring to defraud the United States.

From 2009 until about 2022, Ehr worked for or on behalf of a co-conspirator who was a defense contractor who owned 50% of a business that supplied jet fuel to U.S. troops in Afghanistan and the Middle East. Ehr, of the United Kingdom, was hired to manage music television and entertainment projects funded with proceeds from this business. Over time, Ehr played a role in several of his co-conspirator’s other investments, including a $60 million real estate investment in Mexico and a $50 million fuel infrastructure project.

Ehr agreed to conceal the contractor’s ownership and control of the company, primarily by falsely asserting that the contractor’s wife had founded the company, so that the contractor could obstruct the IRS’s ability to assess and collect the contractor’s taxes, including taxes on profits from contracts with the U.S. Department of Defense. Ehr acknowledged that because of the conspiracy, the contractor evaded taxes on more than $350 million of income and caused a tax loss to the United States of approximately $128 million.

Ehr also did not file returns for 2010 to 2015 nor make payments on taxes he owed for 2010 to 2023, causing a federal tax loss of more than $700,000.

Ehr, the sixth defendant associated with the defense company to plead guilty, faces up to five years in prison for a conspiracy count and a year in prison for a tax count. He also faces a period of supervised release, restitution and monetary penalties. 

College Park, Maryland: Attorney James E. McCollum Jr. has pleaded guilty to not paying employment taxes withheld from employees of his law firm.

From 1998 to 2024, McCollum was the sole proprietor of a firm that he operated using a series of business names. From at least 2000 onward, he was responsible for withholding Social Security, Medicare, and federal income taxes from his employees’ wages and paying those funds over to the government each quarter. McCollum was also obligated to pay over the employer’s share of Social Security and Medicare taxes. McCollum was frequently not compliant with paying these taxes to the government or with filing returns.

Beginning in 2010, the IRS attempted to collect the unpaid employment taxes, issuing numerous notices and levies to the law firm. When the IRS was unable to collect the outstanding taxes from the firm, it assessed them against McCollum personally and tried to collect them from him as well. In 2020, McCollum sought to thwart ongoing collection efforts by transferring his business and its employees to a new entity. He continued to not file the requisite returns or pay over the employment taxes.

McCollum acknowledged that from 2000 through 2024, he did not pay over at least some $2,174,992.83 in employment taxes. He also acknowledged that he did not file his own individual income tax returns and did not pay $220,515 in individual income taxes for 2020 through 2022.

Sentencing is Sept. 29. He faces up to five years in prison.

Suffern, New York: Insurance broker Joseph Schwartz has been sentenced to three years in prison for his role in a $38 million employment tax fraud involving nursing homes he owned across the country.

He previously pleaded guilty to two counts of an indictment charging him with willfully failing to pay over employment taxes withheld from employees of his company and to willfully failing to file a Form 5500 with the Department of Labor for the employee 401(k) plan he sponsored.

Schwartz, operator of Skyline Management Group, failed to pay employment taxes relating to numerous health care and rehabilitation facilities that Skyline operated in 11 states. From October 2017 through May 2018, he caused taxes to be withheld from employees’ pay but failed to pay over more than $38 million in employment taxes to the IRS.

Attleboro, Massachusetts: Bookkeeper David Tetreault has been sentenced to 18 months in prison, to be followed by three years of supervised release, for concealing income from the IRS and for stealing disability benefits.

Tetreault, who pleaded guilty in October, was a bookkeeper for a Massachusetts-based electrical contractor between 2015 and 2021. He received wages in cash and used company funds to pay his personal credit card bills, manipulating the company’s accounting records and bank statements to disguise these payments as business expenses.

He underreported his personal income by at least $2.1 million, causing a loss to the IRS of more than $600,000. He also did not report his work for the contractor or his income to the Social Security Administration and submitted false information about his employment and income to the Employees’ Retirement System of Rhode Island. Between 2016 and 2024, he collected more than $320,000 in Social Security Disability Insurance benefits and ERSRI disability pension benefits to which he was not entitled.

Tetreault has also been ordered to pay $623,602 to the IRS, $159,816 to the Social Security Administration and $161,835 to the Employees’ Retirement System of Rhode Island in restitution. 

Cooper City, Florida: A U.S. district court has issued a permanent injunction against tax preparer Sunil Ramchandani and his business, SR Chandra Inc. (d.b.a. AHS Income Tax Services).

The court ordered AHS Income Tax Services closed and barred Ramchandani from preparing or assisting in preparing federal income tax returns for others or from transferring his client lists. Ramchandani agreed to the injunction against him and his business; AHS had already agreed to a preliminary injunction before filing season.

The complaint alleged that Ramchandani prepared returns that fraudulently claimed false or inflated residential energy credits, false fuel tax credits, fictitious business losses and other false or inflated deductions and credits, including false education credits and fictitious child and dependent credits.

The IRS estimated a tax loss of more than $10 million in 2022 and 2023 alone.

Orlando, Florida: Tax preparer James Fednor Meristin has pleaded guilty to conspiracy to defraud the United States. 

Between 2019 and 2023, Meristin and other co-conspirators operated the tax prep business Kings and Queens Multi Services, which prepared and filed false and fraudulent tax returns for its clients. These fraudulent returns were designed to maximize refunds by claiming undeserved pandemic-related sick and family leave credits. Meristin and his co-conspirators were able to charge and receive exorbitant fees for their services, including as much as $20,000 per return.

Meristin also admitted to deficiencies and fraudulent items in his own returns.

He has agreed to pay $2,338,675 in restitution to the IRS, and he faces up to five years in prison.

East Lyme, Connecticut: Business operator Analia Mountzoures, 48, has pleaded guilty to a tax offense.

Mountzoures operated Mountzoures Cleaning, with some 10 employees providing services to more than 200 commercial and residential clients in southeastern Connecticut. During the 2018 through 2023 tax years, she often paid employees in cash and did not report their wages to the state or federal government, did not file required IRS forms related to her employees nor issue W-2s, did not withhold employee taxes and did not pay federal employment taxes and withholding. 

She also provided her tax preparer with false information that resulted in personal returns that significantly underreported her gross receipts, income and taxes due. 

Mountzoures agreed to pay $380,167.60 in restitution to the IRS.

She pleaded guilty to aiding and assisting a false tax return, which carries a maximum of three years in prison. Sentencing is July 22.

The Public Company Accounting Oversight Board staff released a new publication highlighting the perspectives of audit committee chairs.

The publication, “2024 Conversations With Audit Committee Chairs,” includes observations and takeaways from 272 interviews that PCAOB staff conducted with audit committee chairs last year. The topics include factors affecting their relationships with the audit firm, the economic environment impacting the audit, and the use of emerging technologies in auditing. Over three-quarters (78%) of them had never previously spoken with the PCAOB. Interacting with audit committee chairs offers important viewpoints for PCAOB staff to consider in planning inspection activities.

The publication includes answers to questions that audit committee chairs frequently raise in their conversations with the PCAOB, such as:

• How are audits selected for review?
• What does an inspection entail?
• Does the PCAOB have educational training or events for audit committee members?

Generally, the audit committee chairs of public companies audited by non-affiliated firms spent more time discussing significant transactions, fraud risks and the related procedures to address the risk of fraud, and matters related to internal controls, while the audit committee chairs of public companies audited by global network firms spent more time on independence and accounting issues.
“Most of the audit committee chairs interviewed review the PCAOB’s latest firm inspection report of their auditor and other information publicly available on the PCAOB website when determining whether to reappoint the auditor,” said the report. “Audit committee discussions with their auditors centered around key findings in the inspection reports and measures taken by the audit firms to address those findings. Certain audit committee chairs indicated that the inspection findings are typically summarized by the auditors for discussion with the audit committee. When the audit committee was considering changing audit firms, the audit committee chairs indicated that the findings in the reports were particularly important.”

The release of the staff publication comes as the PCAOB faces the prospect of having its responsibilities transferred to the Securities and Exchange Commission next year if Congress passes a bill that was recently approved by the House Financial Services Committee.

There has recently been an increasing pushback on property taxes across the country. In November 2024, multiple states including Arizona, Florida, Georgia, New Mexico, Virginia and Wyoming had ballot initiatives passed designed to lower property taxes. Now, Florida lawmakers have taken it one step further by proposing to eliminate property taxes altogether. This begs the question if this is feasible, and if so, how would states generate revenue without property tax revenue? 

Over the last few years, property values have skyrocketed. With property taxes tied to a building’s value, this increase has caused a similar increase in property tax assessments. Lawmakers have felt pushback from constituents who are upset about the tax increase on real estate properties. This often leads to increased homestead exemptions, such as Florida’s recent changes, or exemptions for disabled veterans, as occurred in Colorado, New Mexico and Virginia. Most of these exemptions or changes apply primarily to owner-occupied homes and rarely extend to business assets. 

North Dakota attempted to take this one step further. A ballot measure in North Dakota designed to eliminate property taxes failed after pushback over the spending cuts this would require. This scenario is similar to a measure attempted in 2012, which also failed; however, it is important to know that the 2024 ballot measure was much closer, with only 63.5% voting against, as opposed to 76.5% voting against it in 2012. The increased pushback on property taxes was especially notable when North Dakota Governor Kelly Armstrong unveiled a plan in January to eliminate property taxes for most homeowners within the upcoming decade. 

Florida Governor Ron DeSantis followed suit and is pushing for elimination of property taxes across the state. As a state without an income tax, this could be detrimental to state funding. Property taxes in Florida bring in approximately $50 billion annually, which offsets 50% to 60% of school funding, 18% of county revenue and 17% of municipal revenue. While eliminating the property tax burden sounds good in theory to citizens, making up the gaps in funding becomes an issue. One way to make up this funding deficit would be to increase the sales tax. Unfortunately, to make up the revenue difference, Florida’s sales tax would have to double to nearly 12%.   

Increasing sales taxes to offset property taxes can have negative effects. Sales taxes disproportionately affect lower-income earners as they spend a higher percentage of their income on goods and services than higher-income earners. Additionally, this could exacerbate inflationary pressures already felt across the country. Potentially more important to the government is that sales tax revenue tends to be less stable than property tax revenue. In economic downturns, sales tax revenue drops, leading to increasing instability for the state. 

Another option states should consider is continuing to increase homestead exemptions for homeowners, or look to eliminate property taxes for homeowners, similar to the proposals North Dakota’s governor proposed. One problem with this proposal is that it shifts the tax burden to businesses from individuals. This could be detrimental to states attempting to attract business investment. Shifting the burden of taxation solely to businesses could make owners question putting down roots in specific locations.

All considerations regarding how to change a state’s property tax revenue reveal how much of a burden it has become in recent years. Increasing costs of homes continues to lead to skyrocketing tax rates affecting homeowners, businesses and governments across the country. What is a business owner or their advisor to do in the meantime? The worst thing a business owner can do is to sit back and wait to see if the government will change its position on property tax. If the North Dakota example shows anything, it is that changing property tax structures is difficult and takes time.   

A first step business owners should consider is to question their property tax assessments. What many taxpayers do not realize is that their property tax assessment can — and in many cases should — be reviewed and appealed. With property taxes becoming a much higher burden on businesses and individuals, it’s a perfect time to look to determine if a property is accurately assessed. A qualified property tax consultant can look to determine if the property is accurately assessed or overassessed based on multiple factors. Questioning and appealing assessed values can allow building owners to gain control while waiting to see if local governments will change the way property taxes are levied.