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Tax Fraud Blotter: No risk

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Everything must go; have con, will travel; gold rush; and other highlights of recent tax cases.

Deltona, Florida: Business owner David Albert Fletcher has pleaded guilty to evading payment of more than $1.7 million he owed for tax years 2004 through 2014.

Fletcher owned and operated several furniture liquidation businesses and for 2004 through 2013 did not timely file his federal income tax returns or pay taxes. After an audit, the IRS assessed $1.7 million in taxes, interest and penalties.

To evade collection, Fletcher concealed his income and assets from the IRS, including by using nominees to hide his purchases of luxury vehicles. He also filed returns that understated his income, and when interviewed by an IRS special agent lied about how much he earned.

Fletcher faces up to five years in prison.

Chatham, New Jersey: John Goggins, former senior vice president and general counsel for a large public corporation, has been sentenced to eight months in prison for willfully failing to file federal income tax returns.

Goggins, who previously pleaded guilty to a four-count information charging him with willfully failing to file federal income tax returns for 2018 through 2021, earned total gross income in those years of $54 million from wages, restricted stock awards, the exercise of annual nonqualified stock options, interest, dividends and gains from stock sales.

Goggins was also sentenced to a year of supervised release and was ordered to pay $3.11 million in restitution to the IRS (which has already been paid) and was fined $40,000.

Indianapolis: A U.S. district court has permanently enjoined tax preparer Juan Santiago and his company from preparing federal returns for others and from owning or operating tax prep businesses in the future.

Santiago failed to respond to the civil complaint filed against him, so the court entered the permanent injunction by default.

Santiago resides in Lakeland, Florida, but travels to Indianapolis for tax season to operate Madison Solutions LLC. The complaint alleges that he and Madison Solutions used a variety of schemes to improperly reduce clients’ tax liabilities or to obtain undeserved refunds, including by repeatedly placing false or incorrect items, deductions, exemptions or statuses on clients’ returns without their knowledge.

For example, the complaint alleges that Santiago routinely elected head of household status and Child Tax Credits for clients when they were otherwise not qualified for such status or credits. The complaint also alleges that Santiago reported fictitious businesses on returns and fabricated business expenses and income to fraudulently reduce taxable income.

Wilmington, Delaware: Business owner Robert Higgins, of West Chester, Pennsylvania, has been convicted on charges of mail, wire and tax fraud.

He owned and operated First State Depository, a precious metals depository that held more than $100 million in customer assets, primarily in the form of gold and silver bars and coins. Higgins diverted customer assets to pay debts and finance his personal life, including two timeshares in Hawaii and luxury vacations. First State’s records indicated that at least $58 million worth of customer assets had been misappropriated; industry sources generally agree that this is the largest theft from a precious metals depository in U.S. history.

Higgins faces up to 20 years on the wire and mail fraud charges and five years on each tax fraud charge.

Hands-in-jail-Blotter

Ft. Worth, Texas: John Anthony Castro, 40, owner of the virtual tax prep business Castro & Co. who falsely inflated dozens of client returns, has been sentenced to more than 15 years (188 months) in prison for tax fraud.

Castro — who had graduated law school but repeatedly failed the bar exam — held himself out as an “international tax expert” and “federal practitioner” and falsely claimed to be a graduate of West Point.

He successfully marketed to clients around the world, claiming to be an expert on certain tax issues related to Australian expats, among other things. Between 2017 and 2019, he filed more than 1,900 returns on behalf of individuals worldwide. Castro promised his clients a significantly higher refund than they would receive from other preparers, claiming he knew how to identify and claim deductions that others did not. He added that there was no risk, as he split the additional refund amount with clients for his fee.

He did not share the return with clients before filing but instead informed them of the amount of the anticipated refund. On many occasions, Castro filed returns on behalf of clients without their permission or knowledge.

In other instances, he claimed deductions that had no basis in fact. Castro claimed deductions based on extreme and unsupported legal theories, including saying that deductions for any expense related to preventing an illness qualified as an “impairment related work expense;” expenses related to commuting to and from work; and the full value of one’s mortgage and utilities as long as the taxpayer had some Schedule C business to claim, among others.

When the victim-taxpayers learned what Castro had done, many demanded copies of their returns. Castro refused to engage in conversation and even delayed providing returns for months; he often acted in a highly vindictive manner when questioned or challenged by clients or others, berating individuals in emails, threatening legal actions or by filing amended returns, without clients’ permission or knowledge, that removed all deductions. Many of the victims have since been audited or filed amended returns.

Castro was also ordered to pay $277,243 in restitution.

Thornton, Colorado: Tax preparer Lance McCuistion, 56, has been sentenced to 52 months in prison after pleading guilty to preparing false returns for clients.

In July 2014, McCuistion pleaded guilty to preparing false returns in a prior investigation and was sentenced to probation. As a result of that offense, McCuistion was unable to obtain a PTIN. From around April 2018 through April 2022, McCuistion used PTINs in the names of three associates to prepare returns for clients.

These returns claimed items for which McCuistion knew the taxpayers were not eligible, with the aim of increasing refunds or reducing taxes.

Independence, Missouri: Business owner Richard Dean Schiele Jr., 51, has pleaded guilty to filing a false claim as part of a scheme to fraudulently receive nearly $1.4 million in federal COVID-19 relief money.

Schiele admitted he filed nine employer’s quarterly returns with the IRS on April 22, 2023, for a company he formed the same month called Schiele Family Own Distribution. The returns made a total of $1,392,716 in claims for pandemic-era credits against the company’s ostensible employment taxes. Schiele later admitted that the company had no employees in 2020 through 2022.

The IRS issued checks totaling $478,890 to Schiele; the Treasury recovered $348,764.91 from Schiele’s bank account.

He must pay $130,125 in restitution to the IRS.

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Accounting

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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Accounting

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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