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SEC charges tech CEO with $30M fraud

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The Securities and Exchange Commission announced fraud charges Tuesday against Baba Nadimpalli, co-founder and former CEO of SKAEL Inc., a San Francisco-based private technology company that developed business automation software.

Between January 2021 and February 2022, Nadimpalli raised more than $30 million from investors by falsely claiming that SKAEL had millions of dollars in annually recurring revenue, which was more than 10 times the actual number, according to the SEC complaint.

Nadimpalli falsely claimed to investors that SKAEL’s customers included some well-known companies, according to the complaint, and he forged bank statements to show nonexistent payments from customers. 

The SEC also alleges Nadimpalli spent hundreds of thousands of dollars of the company’s money on personal expenses, including house and car payments.

SEC building with official seal

The complaint charges Nadimpalli with violating the antifraud provisions of the federal securities laws and seeks permanent injunctions, including a conduct-based injunction, disgorgement plus prejudgment interest, civil penalties and an officer-and-director bar.

“Startup founders cannot fake it until they make it by falsifying revenue metrics shared with investors,” said Monique Winkler, Director of the SEC’s San Francisco regional office, in a statement. “While the SEC will continue to aggressively pursue private company executives who use falsehoods to raise money from investors, we also urge those who invest in private companies to remain vigilant.”

Along with the SEC’s complaint filed in U.S. District Court for the Northern District of California, the U.S. Attorney’s Office for the Northern District of California announced criminal charges against Nadimpalli.

Attempts to contact Nadimpalli for comment were unsuccessful.

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Accounting

Businesses pounce as GOP weighs limiting corporate SALT break

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Business groups are mobilizing to squelch a plan gathering momentum among Republicans to curtail a heavily used federal income tax break that allows corporations to deduct state and local taxes.

The proposal to cap or eliminate the so-called C-SALT deduction, which has especially riled manufacturers, oil and gas producers and life insurers, is gaining traction with lawmakers as they search for ways to contain the cost of a giant tax cut package Republicans are rushing to approve by the end of May.

C-SALT finds itself in political peril — at least partially — because of the debate over the individual SALT deduction. The household version of that write-off has become one of the most hot-button tax issues in Congress ever since President Donald Trump limited it to $10,000 in his first-term tax bill.

Administration officials and Capitol Hill Republicans are mulling trimming C-SALT as a way to pay for increasing the individual SALT deduction to $25,000. That’s an expensive proposition that will likely require the party to find offsets elsewhere.

Enter the struggle over corporate SALT, which is playing out as the drive to pass tax legislation enters a period of both high risk and great opportunity for myriad interest groups. Lawmakers in the coming weeks hope to work out the measure’s final details and impose some semblance of balance between tax cuts and offsetting revenue increases.

Senate Republicans’ budget gives them $1.5 trillion for new tax cuts over the next 10 years, on top of renewing President Donald Trump’s expiring 2017 tax cuts. 

Republicans are looking for a way to squeeze in new tax cuts on tips, overtime pay and auto loans as well as a higher standard deduction for seniors into that allowance. 

In 2017, Republicans held a large enough majority in Congress that they were able to brush aside concerns of residents of high-tax states such as New York, New Jersey and California over the $10,000 cap individual SALT to offset other tax cuts. This time, the GOP’s margin in the House is razor-thin and at least six Republicans representing high-tax states are insisting the limit be raised.

Business backlash

The corporate SALT break is a parallel version of the deduction for individual taxpayers, except that it was left uncapped in 2017 law. Corporations currently can write-off state levies on income, property and other taxes such as on oil production from income subject to the 21% federal corporate tax.

Business groups including the U.S. Chamber of Commerce, National Association of Manufacturers, Retail Industry Leaders Association, American Petroleum Institute and American Hotel and Lodging Association are all lobbying Congress to shelve the proposal.

The right-of-center Tax Foundation estimates that ending the break for business income taxes would raise $223 billion over 10 years, while ending it for income and property tax would result in $432 billion in new revenue. The broader proposal would cause 147,000 job losses, the group projects. 

Watson McLeish, senior vice president for tax policy at the U.S. Chamber of Commerce, said the proposal will make the country less competitive because it partially reverses the corporate tax cuts in the 2017 law.

The proposal would at a minimum raise the effective rate on U.S. corporations by an average 1.25%, he said. 

Manufacturers are the heaviest users of the tax break with the finance industry closely behind, according to the Tax Foundation study. 

Life insurers argue that they will be squeezed because they will lose deductions for state taxes on premiums but can’t quickly adjust rates on long-term policies to pass on the added cost to customers.

Manufacturers would be especially hard hit by limitations on deducting local property because of the large physical footprint of many plants, said Charles Crain, a vice president of the manufacturers association. 

“If you increase taxes on manufacturers, there is less capital available for job creation, capital investment and research and development,” Crain said.

Retailers are warning they could be hit with higher effective tax rates under the proposal, further squeezing tight margins already under pressure from Trump’s tariff increases. 

That “would provide a disincentive for employers to invest in new facilities or employment,” said Courtney Titus Brooks, a vice president with the retailers group.

Chirag Shah, with the hoteliers group, predicts loss of the tax break “could end up being a major challenge for jobs in the industry.”

The Petroleum Institute’s Aaron Padilla said including state levies on the production of non-renewable resources known as severance taxes would damage Trump’s efforts to promote production and “would be discriminatory against oil and natural gas.”

Proponents of capping business SALT breaks say part of the reason to do so is because states have used the corporate break to allow residents to get around the individual SALT cap by re-classifying income as business earnings. 

“That’s becoming more widespread and more expensive,” said Marc Goldwein of the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

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Accounting

Tax Fraud Blotter: Big plans

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What becomes of the broken-hearted; the earth moved; Kreative accounting; and other highlights of recent tax cases.

Providence, Rhode Island: Four Florida residents have been convicted and sentenced for what authorities called one of the largest schemes to defraud CARES Act programs.

The defendants defrauded various federally funded programs of more than $4.8 million, and each of the defendants pleaded guilty to charges of conspiracy to commit wire fraud and aggravated identity theft. The schemes involved obtaining and using stolen ID information to submit fraudulent applications to multiple state unemployment agencies, including the Rhode Island Department of Labor and Training, and to submit fraudulent Economic Injury Disaster Loans and Paycheck Protection Program loan applications. The defendants also submitted fraudulent applications in the names of other persons to federal and state agencies to obtain tax refunds, stimulus payments, and disaster relief funds and loans.

The scheme involved using the stolen information to open bank accounts to receive, deposit and transfer fraudulently obtained government benefits and payments and to obtain debit cards to withdraw the money.

Sentenced were Florida residents Tony Mertile, of Miramar, identified in court documents as the leader of the conspiracy, to six years in prison; Junior Mertile, of Pembroke Pines, sentenced to 54 months; Allen Bien-Aime, of Lehigh Acres, to four years; and James Legerme, of Sunrise, to four years. All four were also sentenced to three years of supervised release to follow their prison terms.

The government moved to forfeit a total of $4,857,191, or $1,214,294.75 apiece, proceeds of the conspiracy. The defendants have also forfeited hundreds of thousands of dollars’ worth of Rolex watches and assorted jewelry and more than $1.1 million in cash. Each defendant is also liable for $4,456,927.36 in restitution to defrauded agencies and financial intuitions.

Raleigh, North Carolina: Michon Griffin, 46, who engaged as a money mule (a.k.a. middleman) in an international romance scheme, has been sentenced to two years in prison and three years of supervised release after pleading guilty to conspiracy to commit money laundering and to making false statements on her 1040.

Between 2021 to 2023, Griffin received more than $2 million from the scheme that she deposited into fictitious bank accounts that she controlled. She converted the money to virtual currency and wired the funds to overseas accounts controlled by her co-conspirators in Nigeria.

Griffin received some $300,000 from the romance fraud, which she did not report as income on her 1040 for 2021.

She was also ordered to pay $109,119 in restitution to the IRS.

Las Vegas: Tax preparer Keisy Altagracia Sosa has pleaded guilty to preparing false income tax returns.

Sosa has operated the tax prep business National Tax Service, and from 2016 to 2021 prepared and filed false federal returns for clients. These returns included falsely claimed dependents, and fictitious Schedule A and Schedule C expenses such as sales taxes paid and unreimbursed employee expenses.

Sosa continued to prepare false returns even after the IRS notified her that her returns appeared inaccurate and informed her that she may not be meeting due diligence requirements. 

Sosa caused at least $550,000 in tax loss to the IRS.

Sentencing is June 11. She faces up to three years in prison, as well as a period of supervised release and monetary penalties. 

Hands-in-jail-Blotter

Elk Mound, Wisconsin: Business owner Deena M. Hintz, of Eau Claire, Wisconsin, has been sentenced to a year in prison for failure to pay employment taxes.

Hintz, who pleaded guilty in December, owned and operated Jade Excavation and Trucking for nearly 10 years and at times had up to 15 employees. From 2017 to 2021, Hintz deducted more than $400,000 in federal employment taxes from employees’ pay and, instead of paying those taxes to the government, kept the money.

She was also ordered to pay $482,185.46 in restitution.

Littleton, Colorado: Tax preparer Thuan Bui, 60, has been sentenced to three years in prison and a year of supervised release and ordered to pay a $50,000 fine after pleading guilty to one count of aiding or assisting in preparation of false documents.

From about 2016 to 2021, Bui operated a tax prep business under several names, lying to clients that he was a CPA. On hundreds of returns, Bui overstated or fabricated expenses on Schedules C.

Philadelphia: Resident Joseph LaForte has been sentenced to 15 and a half years in prison for defrauding investors, conspiring to defraud the IRS, filing false tax returns, employment tax fraud, wire fraud, obstruction and other charges.

LaForte defrauded investors using a fraudulent investment vehicle known as Par Funding. Along with conspirators, he caused a loss to investors of more than $288 million.

He and conspirators diverted some $20 million in taxable income from Par Funding to another entity controlled by LaForte and nominally owned by another, then filed returns that did not report this income; he also received more than $9 million in kickbacks from a customer of Par Funding and did not report this income to the IRS. He paid off-the-books, cash wages to some employees, failing to report these wages to the IRS and not paying employment taxes.

The federal tax loss exceeds $8 million. He also caused $1.6 million in state tax loss to the Pennsylvania Department of Revenue by falsely reporting that he and his wife were residents of Florida from 2013 through 2019 when they lived in Pennsylvania.

Hampton Roads, Virginia: Two area residents have pleaded guilty to their roles in a refund scheme involving pandemic relief credits.

Between October 2022 and May 2023, Kendra Michelle Eley of Norfolk, Virginia, filed eight 941s for Kreative Designs by Kendra LLC using the EIN assigned to another company, Kendra Cleans Maid Service. These forms covered four tax periods in 2020 and four in 2021. On each of the forms, Eley falsely reported wages paid and federal tax withholdings for 18 purported employees, knowing there were no such employees.

For the four forms filed for 2021, Eley claimed false sick and family leave credits and Employee Retention Credits, totaling some $975,000. In December 2022, the IRS issued two refund checks payable to the cleaning company totaling $649,050.

That same month, Eley and Rejohn Isaiah Whitehead, of Portsmouth, Virginia, opened a business checking account in the name of Kendra Cleans; signatories on the account were Eley and Whitehead. The two falsely represented the nature and extent of the business, including that it had 16 employees and that the average pay of each was $2,000. Eley funded the account by depositing one of the refund checks in the amount of $389,640. In January 2023, Eley wrote Whitehead two checks from the account totaling $60,000.

Whitehead’s sentencing is June 26 and Eley’s is July 9. They each face up to 10 years in prison.

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Accounting

Accountants tackle tariff increases after ‘Liberation Day’

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President Trump’s imposition of steep tariffs on countries around the world is likely to drive demand for accounting experts and consultants to help companies adjust and forecast the ever-changing percentages and terms.

On April 2, which Trump dubbed “Liberation Day,” he announced a raft of reciprocal tariffs of varying percentages on trading partners across the globe and signed an executive order to put the import taxes into effect. Finance executives have been gaming out how to respond to the potential tariffs that Trump has been threatening to impose since before he was re-elected, far exceeding those he actually levied during his first term.

“A lot of CFOs are thinking they are going to pass along the tariffs to their customer base, and about another half are thinking we’re going to absorb it and be more creative in other ways we can save money inside our company,” said Tom Hood, executive vice president for business engagement and growth at the AICPA & CIMA. 

The AICPA & CIMA’s most recent quarterly economic outlook survey in early March polled a group of business executives who are also CPAs and found that 85% said tariffs were creating uncertainty in their business plans, while 14% of the business execs saw potential positive impacts for their business from the prospect of tariffs as increased cost of competing products would benefit them, and 59% saw potential negative impacts to their businesses from the prospect of tariffs. This in turn has led to a dimming outlook on the economy among the executives polled.

“CFOs in our community are telling us that, effectively, they’re looking at this a lot like what happened over COVID with a big disruption out of nowhere,” said Hood. “This one, they could see it coming. But the point is they had to immediately pivot into forecasting and projection with basically forward-looking financial analysis to help their companies, CEOs, etc., plan for what could be coming next. This is true for firms who are advising clients. They might be hired to do the planning in an outsourced way, if the company doesn’t have the finance talent inside to do that.”

The tariffs are not set in stone, and other countries are likely to continue to negotiate them with the U.S., as Canada and Mexico have been doing in recent months.

“The one thing that I think we can all count on is a certain amount of uncertainty in this process, at least for the next several months,” said Charles Clevenger, a principal at UHY Consulting who specializes in supply chain and procurement strategy. “It’s hard to tell if it’s going to go beyond that or not, but it certainly feels that way.”

Accountants will need to make sure their companies and clients stay compliant with whatever conditions are imposed by the U.S. and its trading partners. “This is a more complex tariff environment than most companies have experienced in the past, or that seems to be where we’re headed, and so ensuring compliance is really important,” said Clevenger.

Big Four firms are advising caution among their clients.

“Our point of view is we’re advising all of our clients to do a few things right out of the gate,” said Martin Fiore, EY Americas deputy vice chair of tax, during a webinar Thursday. “Model and analyze the trade flows. Look at your supply chain structures. Understand those and execute scenario planning on supply chain structures that could evolve in new environments. That is really important: the ability for companies to address the questions they’re getting from their C-suite, from their stakeholders, is critical. Every company is in a different spot according to the discussions we’ve had. We just are really emphasizing, with all the uncertainty, know your structure, know your position, have modeling put in place, so as we go through the next rounds of discussions over many months, you have an understanding of your structure.”

Scenario planning will be especially important amid all the unpredictability for companies large and small. “They’re going to be looking at all the different countries they might have supply chains in,” said Hood. “And then even the smaller midsized companies that might not be big, giant global companies, they might be supplying things to a big global company, and if they’re in part of that supply chain, they’ll be impacted through this whole cycle as well.”

Accountants will have to factor the extra tariffs and import taxes into their costs and help their clients decide whether to pass on the costs to customers, while also keeping an eye out for pricing among their competitors and suppliers.

“It’s just like accounting for any goods that you’re purchasing,” said Hood. “They often have tariffs and taxes built into them at different levels. I think the difference is these could be bigger and they could be more uncertain, because we’re not even sure they’re going to stick until you see the response by the other countries and the way this is absorbed through the market. I think we’re going through this period of deeper uncertainty. Even though they’re announced, we know that the administration has a tendency to negotiate, so I’m sure we’re going to see this thing evolve, probably in the next 30 days or whatever. The other thing our CFOs are reminding us of is that the stock market is not the economy.”

Amid the market fluctuations, companies and their accountants will need to watch closely as the rules and tariff rates fluctuate and ensure they are complying with the trading rules. “Do we have country of origin specified properly?” said Clevenger. “Are we completing the right paperwork? When there are questions, are we being responsive? Are we close to our broker? Are we monitoring our customs entries and all the basic things that we need to do? That’s more important now than it has been in the past because of this increase in complexity.”

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