Accounting
Tax Fraud Blotter: Mass misdeeds
Noted; loan sharks; lowering the Boomer; and other highlights of recent tax cases.
Orlando, Florida: Christopher Johnson and Jasen Harvey, who is from Tampa, Florida, have pleaded guilty to conspiring to defraud the U.S. with a tax fraud called the “Note Program.”
Arthur Grimes, of Ocoee and Orlando, Florida, pleaded guilty on April 2 to obstructing the IRS in connection with the fraud.
From 2015 to 2018, Johnson and Harvey promoted a scheme in which Harvey and others prepared returns for clients that claimed large nonexistent income tax withholdings had been paid to the IRS and sought large refunds based on those withholdings. The conspirators charged clients fees and required them to pay over a portion of the fraudulently obtained refunds.
Overall, the defendants claimed more than $3 million in fraudulent refunds on clients’ returns, of which the IRS paid about $1.5 million.
Grimes caused four false income tax returns prepared by Harvey to be filed. When the IRS attempted to recover a refund issued to Grimes based on one of those returns, Grimes made false statements and submitted false documents to an IRS revenue officer and transferred funds to a nominee bank account.
Johnson was paid more than $200,000 in 2016 and more than $100,000 in 2017 as his share of the proceeds from the scheme. He filed returns for those years that did not report that income, resulting in a tax loss of $78,259.
Johnson and Harvey each face up to five years in prison for the conspiracy charge. Grimes will be sentenced on Nov. 12; he faces a maximum of three years in prison for the tax obstruction charge. All three also face a period of supervised release, restitution and monetary penalties.
Farmington, Connecticut: Accountant and tax preparer Mark Legowski, 60, has pleaded guilty to filing false returns.
From January 2015 through December 2017, Legowski was a self-employed accountant and tax preparer doing business as Legowski & Company Inc. He prepared income tax returns for some 400 to 500 individual clients and some 50 to 60 businesses.
For the 2015 through 2017 tax years, to reduce his personal income tax liability, Legowski willfully underreported his firm’s gross receipts in its bookkeeping system by excluding some client payment checks. He then filed false personal income tax returns that failed to report more than $1.4 million in business income, which resulted in a loss to the IRS of $499,289.
Sentencing is Nov. 25. Legowski faces a maximum of three years in prison. He has agreed to cooperate with the IRS to pay $499,289 in back taxes, as well as penalties and interest.
San Diego: Andre Shammas, 43, owner of the accounting and tax prep business Shammas Funding Inc., has pleaded guilty to fraud charges, admitting that he submitted bogus applications for more than $5 million in pandemic-related loans.
Shammas admitted using his business to illegally apply for more than 40 Paycheck Protection Program loans. He solicited and recruited clients of the tax prep business and others to apply for fraudulent loans, then prepared fraudulent tax and other documentation to support fraudulent applications.
The applications included false and fraudulent statements in the loan applications, including false representations regarding the number of employees, the average monthly payroll and the gross receipts earned by the purported businesses.
Sentencing is Nov. 18. He faces up to 20 years in prison.
Reedsville, Pennsylvania: Vincent Minervini has pleaded guilty to filing a false return in 2018.
From 2014 through 2018, Minervini operated various companies that he either owned on his own or controlled through a partnership, including VM Holdings; Supreme Star Property Management; Boomer Builders; Debt Free Partnerships; Boomer Ranches DS; and VMJH Holdings.
Minervini filed personal and business returns in each of these years and made it appear that his businesses were incurring expenses, which were deducted from his businesses’ taxable income, by moving money from one of his companies to another and labeling such payments “Management Services,” “Management Fees,” “Operating Expenses,” “Operating Budget” and “Transfers.”
He also made payments from his companies to himself without reporting the transfers as income in his personal returns. As a result of these actions, Minervini underreported some $2,102,512 in income.
Minervini admitted that the tax returns for 2014 to 2018 contained knowingly false information and accepted responsibility for $266,618 in unpaid taxes, which was the full amount of unpaid taxes for 2014 to 2018. He also agreed to pay restitution to the IRS in that amount.
St. David, Arizona: Resident Roy L. Layne has pleaded guilty to wire fraud and filing a false refund claim with the IRS.
In 2020 and 2021, he submitted false applications on behalf of several bogus businesses to the U.S. Small Business Administration for loans from the PPP and the Economic Injury Disaster Loan programs. Layne claimed that the businesses had dozens of employees and earned hundreds of thousands in gross receipts; he created false business and employment tax forms that he filed with the IRS and submitted to the SBA.
Layne requested and received more than $300,000 in loans to which he was not entitled. In 2022, he also filed false returns with the IRS that sought nearly $7.5 million in refunds, of which the IRS paid some $550,000.
Sentencing is Feb. 3. He faces a maximum of 30 years in prison for each wire fraud charge and five years for the false claim charge. He also faces a period of supervised release, restitution and monetary penalties.
Conyngham, Pennsylvania: Attorney Jill Moran, 55, has pleaded guilty to a three-count criminal information charging her with failing to pay individual income taxes for 2016, 2017 and 2018, in connection with substantial legal fees she earned as the owner and operator of the Powell Law Group, a local law firm, and as a member of the trust advisory committee for a mass tort litigation.
Moran did not pay individual income taxes for tax year 2016 on some $1,215,000 she received, and did not pay individual income taxes on substantial income she received in tax years 2017 and 2018. She caused a total tax loss to the IRS of $250,000 to $550,000.
In 2009, Moran became the managing director and president of the Powell Law Group, when the founder and owner of the firm, Robert J. Powell, was suspended from the practice of law and ultimately disbarred. Moran and Powell agreed that she would collect 10% and he would collect 90% of any future fees the firm earned after expenses.
The Powell Law Group represented thousands of plaintiffs in a mass tort litigation that settled for some $5.15 billion in 2015, from which the firm was expected to receive some $120 million in attorneys’ fees. Prior to the attorneys’ fees disbursement, Powell Group and its co-counsel used those future legal fees as collateral to obtain loans totaling more than $125 million.
In 2014 and 2015, Moran received two disbursements of $500,000 each from those loan proceeds. She also received some $215,000 for her work on the trust advisory committee. In June 2016, most of the attorneys’ fees were finally disbursed and the loans repaid.
Still Moran paid no taxes on both the $1 million she received in attorney’s fees that year and the $215,000 she received for her work on the advisory committee. Likewise, in both 2017 and 2018 Moran received substantial income but paid no taxes on it.
On Aug. 14, Robert Powell pleaded guilty to evading taxes on the income he received in legal fees from the mass tort litigation. He awaits sentencing.
The Financial Accounting Standards Board issued a
U.S. GAAP currently doesn’t provide specific authoritative guidance about the recognition, measurement, and presentation of a grant received by a business entity from a government. Instead, many businesses currently apply the International Financial Reporting Standards Foundation’s International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy, at least in part, to account for government grants.
In 2022 FASB issued an Invitation to Comment, Accounting for Government Grants by Business Entities—Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into GAAP. In response, most of FASB’s stakeholders supported leveraging the guidance in IAS 20 to develop accounting guidance for government grants in GAAP, believing it would reduce diversity in practice because entities would apply the guidance instead of analogizing to it or other guidance, thus narrowing the variability in accounting for government grants.
Patrick Dorsman/Financial Accounting Foundation
The proposed ASU would leverage the guidance in IAS 20 with targeted improvements to establish guidance on how to recognize, measure, and present a government grant including (1) a grant related to an asset and (2) a grant related to income. It also would require, consistent with current disclosure requirements, disclosure about the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant, among others.
FASB is asking for comments on the
“It will not be a cut and paste of IAS 20,” said FASB technical director Jackson Day during a session at Financial Executives International’s Current Financial Reporting Insights conference last week. “First of all, the scope is going to be a little bit different, probably a little bit more narrow. Second of all, the threshold of recognizing a government grant will be based on ‘probable,’ and ‘probable’ as we think of it in U.S. GAAP terms. We’re also going to do some work to make clarifications, etc. There is a little bit different thinking around the government grants for assets. There will be a deferred income approach or a cost accumulation approach that you can pick. And finally, there will be different disclosures because the disclosures will be based on what the board had previously issued, but it does leverage IAS 20. A few other things it does as far as reducing diversity. Most people analogized IAS 20. That was our anecdotal findings. But what does that mean? How exactly do they do that? This will set forth the specifics. It will also eliminate from the population those that were analogizing to ASC 450 or 958, because there were a few of those too. So it will go a long way in reducing diversity. It will also head down a model that will be generally internationally converged, which we still think about. We still collaborate with the staff [of the International Accounting Standards Board]. We don’t have any joint projects, but we still do our best when it makes sense to align on projects.”
PwC made a $1.5 million investment to Bryant University, in Smithfield, Rhode Island, to fund the launch of the PwC AI in Accounting Fellowship.
The experiential learning program allows undergraduate students to explore AI’s impact in accounting by way of engaging in research with faculty, corporate-sponsored projects and professional development that blends traditional accounting principles with AI-driven tools and platforms.
The first cohort of PwC AI in Accounting Fellows will be awarded to members of the Bryant Honors Program planning to study accounting. The fellowship funds can be applied to various educational resources, including conference fees, specialized data sheets, software and travel.
Krisztian Bocsi/Bloomberg
“Aligned with our Vision 2030 strategic plan and our commitment to experiential learning and academic excellence, the fellowship also builds upon PwC’s longstanding relationship with Bryant University,” Bryant University president Ross Gittell said in a statement. “This strong partnership supports institutional objectives and includes the annual PwC Accounting Careers Leadership Institute for rising high school seniors, the PwC Endowed Scholarship Fund, the PwC Book Fund, and the PwC Center for Diversity and Inclusion.”
Bob Calabro, a PwC US partner and 1988 Bryant University alumnus and trustee, helped lead the development of the program.
“We are excited to introduce students to the many opportunities available to them in the accounting field and to prepare them to make the most of those opportunities, This program further illustrates the strong relationship between PwC and Bryant University, where so many of our partners and staff began their career journey in accounting” Calabro said in a statement.
“Bryant’s Accounting faculty are excited to work with our PwC AI in Accounting Fellows to help them develop impactful research projects and create important experiential learning opportunities,” professor Daniel Ames, chair of Bryant’s accounting department, said in a statement. “This program provides an invaluable opportunity for students to apply AI concepts to real-world accounting, shaping their educational journey in significant ways.”
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