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Tax Fraud Blotter: Beat this

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Let me pay that; W-2-timer; the early bird gets a cell; and other highlights of recent tax cases.

Kansas City, Missouri: Anthony M. Alford, 46, has been charged with making a hoax call that led to an IRS employee being detained and a local IRS office being locked down.

The federal criminal complaint alleges that Alford placed a call to emergency services, falsely claiming that an individual was armed and was threatening to shoot people in an IRS building. According to an affidavit filed in support of the complaint, Alford called 911 on Sept. 10, 2024, and reported that a person identified in court documents as “Victim One” had a gun and was threatening to shoot up the IRS building at 333 W. Pershing Road in Kansas City. The victim is an IRS employee.

Police were dispatched to the building, where they contacted IRS security and federal officers. The victim had been detained and searched for weapons based on the 911 call. Following the call, a wing of the IRS building was locked down and the IRS announced that there was an active shooter in the building.

The victim, who was unarmed, told investigators she had been dating Alford for about a month and was trying to break up with him. Alford had never been violent, she said, but had exhibited controlling, possessive and jealous behavior. Alford had repeatedly called and messaged her the previous night, she said, and earlier that morning sent her messages threatening to involve the police.

Investigators interviewed Alford afterward and he told them the victim did not threaten to shoot up the IRS Building, as he had said in the 911 call. His stated intention was to instigate trouble for the victim at work.

Alford remains in custody pending a detention hearing on Oct. 4.

Rolling Meadows, Illinois: Tax preparer Adam R. Oliva has admitted that he stole more than $1.1 million from more than 10 clients under the pretense that the money would be sent to the IRS and state revenue authorities to satisfy tax liabilities.

Oliva held himself out as a tax professional who did business under various names, including Oliva and Associates LLC and The Oliva Group LLC. Oliva admitted in a plea agreement that from 2015 to 2020, he fraudulently induced the clients to provide him with money for the purported purpose of paying their income taxes. Oliva instead kept the money for himself.

Oliva also admitted that he filed false returns on behalf of some of the clients, reflecting no or lower tax liabilities to make it less likely that the IRS would contact the clients about their unpaid tax liabilities.

Earlier this year, Oliva pleaded guilty in a separate fraud case for duping investors who had provided him with money to fund purported short-term loans to clients. Oliva promised the investors that they would receive returns of 10% to 20% on their investments when Oliva actually never intended to make any short-term loans. Instead, he pocketed the investors’ money and used it for personal expenses, including gambling, restaurants and retail purchases. Oliva faces up to 20 years in prison in this case when sentenced on Oct. 18.

He pleaded guilty to one count of wire fraud and one count of preparing a false return. The wire fraud count is punishable by up to 20 years in prison; the tax count carries a maximum of three years. Sentencing is Jan. 24.

Hands-in-jail-Blotter

Palm Springs, California: Resident William Mandel Musgrow has pleaded guilty to scheming to defraud the IRS out of more than $2.1 million via the issuing of fake W-2s and to fraudulently obtaining nearly $1 million of COVID-19 economic relief loans.

Musgrow used one of his business entities to issue fraudulent W-2s that represented to the IRS that the recipients were employed by his various businesses, received wages and had federal tax withheld from their paychecks, when, in fact, the W-2s either overstated the recipient’s income or were wholly fraudulent as the recipient either did not work for the business at all or had no federal income tax withheld from paychecks. Musgrow then would help the recipient file fraudulent federal income tax returns that utilized the bogus W-2s to generate an undeserved refund.

In total, Musgrow issued at least 87 fraudulent W-2s and assisted in the filing of at least 87 false income tax returns. These returns requested a total of $2,769,600 in refunds, and the IRS paid out $2,136,630.

From March to August 2020, Musgrow also submitted 14 fraudulent applications to the U.S. Small Business Association and banks for Paycheck Protection Program loans and Economic Injury Disaster Loans. In these applications, Musgrow lied about the number of employees to whom were paid wages, falsely certifying that the loan proceeds would be used for permissible business purposes, and, in some cases, that the businesses were legitimate, when in fact they were not operating in any fashion and had no employees.

Musgrow submitted a total of 14 fraudulent loan applications that requested more than $1.9 million. The SBA and lenders approved and funded many of the loans; Musgrow obtained some $970,000 in fraudulent proceeds.

Sentencing is Jan. 16. Musgrow will face up to 20 years in prison for wire fraud and three years for the tax fraud.

Austin, Texas: Resident Frank Richard Ahlgren III has pleaded guilty to filing a return that falsely underreported the capital gains he earned from selling $3.7 million in bitcoin. 

Between 2017 and 2019, he filed returns that underreported or did not report the sale of $4 million worth of bitcoin in which he had substantial gains. Ahlgren was an early investor in bitcoin: In 2015, he bought some 1,366 bitcoin when the virtual currency was valued at no more than $500 each. In October 2017, Ahlgren sold some 640 bitcoin for $3.7 million.

He then filed a federal return for 2017 that substantially inflated the cost basis of the bitcoin, underreporting his capital gain. In 2018 and 2019, Ahlgren also sold more than $650,000 worth of bitcoin and did not report those sales on either year’s return. 

He caused a federal tax loss exceeding $550,000.

Ahlgren faces up to three years in prison as well as a period of supervised release, restitution and monetary penalties.

Albuquerque, New Mexico: David Wellington has been sentenced to 40 months in prison for devising and operating a tax evasion scheme, and has been ordered to pay more than $5.5 million in restitution.

In January 2005, Wellington and Stacy Underwood founded National Business Services in New Mexico, specializing in creating LLCs for clients seeking to “beat the IRS” by evading taxes. Wellington focused on marketing and client development; Underwood managed corporate filings and bank accounts. The company obtained EINs for clients and opened bank accounts under Underwood’s signature authority.

From 2005 to 2015, they created 192 LLCs and opened 114 bank accounts, with some $41.7 million deposited into accounts under Underwood’s control, representing concealed income. One client, Jerry Shrock, had three LLCs formed by National Business while undergoing an IRS audit. Despite the audit, Shrock transferred his home into one of the LLCs to shield it from the government. Between 2011 and 2015, he deposited nearly $4.9 million into a bank account opened for one of his LLCs, concealing more than $4.3 million in income without ever filing returns.

Underwood previously pleaded guilty to conspiracy to defraud the United States; her sentencing is pending. She faces up to five years in prison to be followed by up to three years of supervised release. Shrock pleaded guilty to conspiracy to defraud the U.S. and was sentenced to five years of probation and ordered to pay $1,542,769.70 in taxes, interest and penalties.

Upon his release from prison, Wellington will be subject to three years of supervised release and is prohibited from ever running any business advising clients or dealing with the IRS.

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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