Accounting
Tax Fraud Blotter: In the gutter
Host of problems; comp it; plan to fail; and other highlights of recent tax cases.
Portland, Maine: Colleen Holt-Thompson, of Kentucky, has been sentenced to three years of probation and ordered to pay $172,158.79 in restitution for conspiracy to commit visa fraud and for tax evasion.
Holt-Thompson founded Host Ukraine in 2015 in Newport, Kentucky, and served as the nonprofit’s executive director. The organization brought children living in orphanages in Ukraine to stay with American families for short periods over the summer or winter holidays. Host Ukraine was required to have the permission of the Ministry of Social Policy in Ukraine to transport each child, and the name and address of a hosting family was required before permission would be granted. Once permission was granted, the U.S. embassy in Kyiv, Ukraine, would issue a non-immigrant visa to the child. Between 2015 and 2019, Thompson applied for and received ministry hosting permission for 828 U.S. non-immigrant visas for Ukrainian children.
To obtain the visas, Holt-Thompson provided placeholder names — names and addresses of American families who had not actually agreed to serve as hosts — when she submitted names of Ukrainian children to the Ministry. Before the children traveled to the U.S., she would find actual host families for each child. During the period of the conspiracy, a conspirator who lived in Maine and was the Northeast contact for Host Ukraine was responsible for identifying placeholder families in Maine and recruiting families to serve as host families for the Ukrainian children who traveled to the U.S. on fraudulently obtained visas. Host families were charged a $3,000 fee to host a child; Host Ukraine collected donations.
In 2016, Holt-Thompson spent some $127,610 in personal expenses and paid for those expenses from Host Ukraine’s checking account or paid personal credit card bills using that checking account.
Money spent on personal expenses was not reported as income on the return that Holt-Thompson and her husband filed; she reported her taxable income for that year as only $47,226. She also failed to file a return for Host Ukraine.
Buffalo, New York: Workers’ comp claim handler Maureen Holleran has pleaded guilty to filing a false return.
Between September 2015 and October 2023, Holleran worked remotely as a workers’ comp handler for an insurance company in Canada. She evaluated and paid workers’ comp claims for policies issued by the company. Holleran had authority to send payments to a claimant of up to $2,000 without further approval by her supervisor. Between July 2020 and June 2023, Holleran submitted more than 1,200 fraudulent claims in the insurance company’s processing system, each claim below the $2,000 threshold. Claims were paid into bank accounts controlled by Holleran. She created fictitious expenses, such as claims for lost wages and reimbursements for medical supplies and copays, to justify the fraudulent payments.
She submitted some $2.37 million in fraudulent claims, creating fictitious email accounts that appeared to be associated with the policy claimant, then used these email addresses to sign up for the insurance company’s client portal. She then input her own banking information into the portal.
For 2020 through 2022, Holleran embezzled some $1,592,095 from the company that she failed to report on her income tax returns for those years. The IRS estimates that the tax for these tax years is $545,792.
Sentencing is Nov. 4. The charge carries a maximum of three years in prison and a fine of $250,000.
Jackson, Mississippi: A U.S. District Court has entered permanent injunctions against Thomas Walt Dallas, Jason Todd Mardis and Capital Preservation Services to bar them from making statements about tax benefits for compensation, among other relief. The defendants consented to the injunctions.
According to the complaint, Dallas, Mardis and Capital Preservation Services marketed a tax scheme at numerous professional conferences and media appearances, targeting medical professionals and small-business owners. They allegedly falsely claimed that customers following “Tax Plans” could claim multiple deductions to which they were in fact not entitled. This included claims that customers’ businesses could deduct large, unnecessary “marketing fees” to marketing companies; that those companies could employ family members and deduct family meals, vehicle expenses and tuition, among other items; and that customers could “rent” homes to businesses short-term at exorbitant rates and avoid taxes on the rental income.
The alleged harm from the scheme could be as much as $130 million in tax revenue since 2014.
Lewisville, Texas: Bookkeeper Barbara Chalmers has been sentenced to 10 years in prison, to be followed by three years of supervised release, for a scheme to embezzle at least $29 million from her employer, a charitable foundation and other companies run by a Dallas family.
She admitted that starting in at least 2012 she used her position as bookkeeper for the family’s companies and her signatory authority over bank accounts to write herself at least 175 checks that she deposited into her personal accounts. She also provided false paperwork to tax preparers that misstated year-end cash-on-hand for the accounts from which she was embezzling.
Chalmers used more than $25 million of the stolen money to fund a construction business; she used $6 million to pay off credit card debt.
She was also ordered to pay $44,809,438 in restitution to her victims.
Rochester, New York: Business owner Jeffrey Tome, 62, has pleaded guilty to filing a false return.
Tome owns Tome Enterprises Inc., which provides gutter repair and installation services. For 2017 through 2021, he failed to deposit 1,679 customer checks totaling $1,719,283.45 into the business bank account, instead cashing the checks at a local check-cashing business.
Tome then intentionally failed to advise the business’ tax preparer of the money received from cashing the business checks, resulting in the $1,719,283.45 not being reported on the corporate income tax returns.
He failed to include the net profits from the corporation as income on his personal federal income tax returns, resulting in his failing to pay personal income taxes of $330,137. He also paid his employees $407,573.60 in cash, which represented wages for which payroll taxes should have been paid. The payroll taxes that Tome failed to pay totaled $62,358.76.
Sentencing is Dec. 11. Tome faces up to three years in prison and a fine of $250,000.
New York: Business owner Nicholas Arcuri, of Staten Island, has pleaded guilty to failing to collect and pay over employment taxes from his company’s employees.
Between 2015 and 2021, Arcuri, owner and president of Capri Upholstery Custom Furnishing, paid some $2.6 million in off-the-books cash to employees, from which he did not withhold Social Security, Medicare or income taxes or pay over those taxes to the IRS. Arcuri also concealed the cash payroll from his return preparer.
In total, Arcuri caused a tax loss to the IRS of $486,753.
Sentencing is Jan. 23. He faces up to five years in prison as well as a period of supervised release, restitution and monetary penalties.
Sunrise, Florida: Resident Yolanda Dewar has pleaded guilty to filing false federal returns to fraudulently obtain refunds.
Between 2018 and 2020, she created a trust and filed four false returns on behalf of the trust for nearly $2 million in refunds. Dewar continued filing such returns even after the IRS notified her that her claims were frivolous and had no basis in law. Nevertheless, the IRS issued nearly $500,000 to the trust in response to Dewar’s false claims.
Dewar allegedly used a portion of those refunds to purchase a car for a family member, get plastic surgery and renovate her home.
Sentencing is Oct. 24. She faces up to three years in prison, a period of supervised release, restitution and monetary penalties.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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