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Tax Fraud Blotter: No class

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Pushing 100 notices; nothing but the tooth; checking out; and other highlights of recent tax cases.

Le Roy, Minnesota: Tax preparer Craig Jacobson, 67, has been sentenced to two years of probation after pleading guilty to two felony counts of failure to collect and remit taxes, according to published reports. 

Jacobson was reportedly charged after the Minnesota Department of Revenue revealed that he failed to file multiple withholding returns, filed false withholding and federal returns, and failed to pay withholding taxes for four years.

In late 2020, the state began investigating Jacobson after learning about criminal tax violations occurring from 2015 to 2018, according to published reports. During that time, reports said, Jacobson was CEO of two companies — M&I Tax Accounting and C&C Tax Service Inc., both of which were registered with the state for corporation tax, sales and use tax, and withholding tax accounts.

From 2015 to 2016, M&I reportedly withheld taxes from employees’ wages but never turned those taxes in. The state of Minnesota sent more than 60 notices to M&I, reports added. From 2017 to 2018, C&C withheld taxes from its employees’ wages, but again, the state reportedly said no withheld taxes were paid despite tax authorities sending another 30 notices.

During the same period, Jacobson reportedly had substantial gambling winnings and losses but his returns showed no federal taxes reflecting this. A tax specialist for the state compared Jacobson’s individual returns that he filed for Minnesota with those he filed with the IRS. The two didn’t match, reports said.

News outlets added that before the plea deal Jacobson was charged with 10 felony counts of failing to file withholding tax returns, 10 felony counts of failing to pay withholding tax, four felony counts of filing false or fraudulent individual income tax returns and one felony count of filing a false withholding return.

Ft. Worth, Texas: A U.S. District Court has permanently barred tax preparer Ruben Gonzalez and anyone acting with him or at his direction from preparing federal returns for others. Gonzalez consented to the injunction.

Gonzalez is banned from using his business, “Sin Barreras Income Tax,” to prepare returns for others. The government’s complaint alleged that Gonzalez or those working for him significantly overstated clients’ refunds in a substantial number of returns prepared at the business from 2021 to 2023 by fabricating or inflating business losses, by fabricating charitable donation deductions and by falsely claiming energy credits and COVID family sick leave credits. The complaint alleges Gonzalez cost the U.S. more than $20 million in lost tax revenue from 2021 to 2023.

The injunction requires Gonzalez to notify each person for whom he or preparers at Sin Barreras prepared federal returns, amended returns or refund claims from 2021 to the present. Gonzalez must also post a copy of the injunction where he conducts business and post a statement on social media accounts and websites that he is barred from preparing returns.

Princeton Junction, New Jersey: Professor and pharmacy co-owner Gordian A. Ndubizu, 69, has been convicted of evading federal income taxes and filing false returns.

During tax years 2014 through 2017, he was a professor of accounting at a university in Pennsylvania as well as the co-owner of Healthcare Pharmacy in Trenton, New Jersey. Healthcare Pharmacy was organized as an S corporation, the income of which flowed through to Ndubizu and his wife and was to be reported on their personal income tax returns.

He prepared fraudulent books and records for Healthcare Pharmacy, inflating costs of goods sold to reduce and underreport the pharmacy’s profits flowing through to him and his wife. Among other falsehoods, Ndubizu identified certain wire transfers as payments to purchase goods sold by the pharmacy when these wire transfers were made to personal bank accounts under his control and to bank accounts in Nigeria associated with an automotive company under his control. 

Ndubizu’s returns for tax years 2014 through 2017 underreported his income and falsely reported that he had no financial interest in or signature authority over any foreign bank accounts. He failed to report some $3.28 million in income from the pharmacy, resulting in the evasion of some $1.25 million in tax.

Each count of tax evasion carries a penalty of up to five years in prison and a fine of $250,000. Each count of filing a false tax return carries a maximum of three years in prison and a fine of $250,000.

Hands-in-jail-Blotter

Hastings, Minnesota: Tax preparer Tania Fay Pryor, 37, has been sentenced to six months in jail for felony tax evasion, according to published reports.

Pryor, who reportedly once owned five H&R Block franchises and a daycare center, must also pay restitution and serve five years of probation.

Pryor was initially charged with 18 tax-related counts between 2006 and 2008 and owed more than $43,000 in unpaid taxes, reports said, adding that she pleaded guilty last May to four counts of failing to file returns or report her income and to two more charges of failing to pay taxes.

She reportedly failed to file returns or pay taxes, including for her former employees, though she deducted the money from their paychecks. According to cited state records, Pryor did not file withholding returns and tax deposits for her tax-preparing business for 2007 and 2008. A criminal complaint filed in a local county district court said Pryor owed more than $7,500 in withholding tax for 2006 for that business, according to reports.

Newark, New Jersey: Business owner Alain Rodrigues, 49, has admitted evading taxes through a check-cashing scheme.

Rodrigues owned and operated a construction company in Newark and Old Bridge, New Jersey, and beginning around 2017 deposited a portion of the payments from his customers into a business bank account; he then converted the balance to cash and money orders that he deposited in a personal bank account or used to pay cash wages to employees.

Rodrigues only reported the portion of the company’s revenue that was deposited in the business bank account on his business taxes and did not report the business revenue deposited directly into his personal bank account as income on his personal income taxes. The company, under his direction, also did not report to the IRS the cash wages it paid to employees nor collect or pay over employment taxes on these wages.

Rodrigues and his company paid $554,873 less than they owed in income taxes and failed to collect and pay over $793,139 in employment taxes, a total of some $1.35 million.

Sentencing is Dec. 19. Each count of tax evasion and failure to collect and pay over taxes carries a maximum of five years in prison and a $250,000 fine. As part of his plea agreement, Rodrigues has agreed to pay the government $1.35 million in restitution and to file amended returns. 

Pickerington, Ohio: Office manager Eric Moesle has pleaded guilty to failing to pay more than $750,000 in employment taxes and to failure to file returns. 

From 2014 through 2020, Moesle was the office manager for Elemental Dental in Pataskala, Ohio, where he oversaw payroll, bookkeeping and tax return prep. At Moesle’s direction, Elemental withheld Social Security, Medicare and income taxes from employees’ wages but did not pay over those taxes to the IRS nor file employment returns. During that time, the business also failed to pay over the employer’s share of those taxes.

Interviewed by the IRS in 2022, Moesle lied that he didn’t know that the employment taxes hadn’t been paid and that Elemental’s employment tax returns and W-2s hadn’t been filed; he also falsely stated these failures or omissions were unintentional. 

Moesle caused a federal tax loss of $760,255.

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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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