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Tax Fraud Blotter: Party’s over

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Unaltered behavior; playing chicken; out on a rail; and other highlights of recent tax cases.

West Palm Beach, Florida: A federal district court has issued a permanent injunction against tax preparer Gregory Salgado, both individually and d.b.a. GMJ Real Investments Inc. and Cuba Salgado Tax & Real Estate.

Salgado is barred from preparing returns, working for or having any ownership stake in a tax prep business, assisting others to prepare returns or set up business as a preparer, and transferring or assigning customer lists to any other person or entity. The court also ordered him to pay $85,000 in gains from his tax prep business. Salgado agreed to both the injunction and the order to pay.

The complaint alleged that Salgado pleaded guilty in 2012 to filing a false personal return and filing a false return for another taxpayer and that the IRS assessed more than $500,000 in civil penalties against him for willfully underreporting tax on returns he prepared for clients.

According to the complaint, neither Salgado’s conviction, 33-month incarceration nor civil penalties altered his behavior. After his release from prison in 2015, Salgado continued to prepare thousands of returns for clients that either reduced their tax liability or inflated their refund claims. He did this largely by falsifying or overstating itemized deductions, fabricating or overstating business income and expenses and falsifying filing statuses and dependents.

Salgado must send notice of the recent injunction to each person for whom he or his business prepared federal returns, amended returns or claims for refund between Jan. 1, 2019, to the present. The court also ordered him to post a copy of the injunction at all locations where he conducts business and on his business’s website.

Cincinnati: Restaurateur Richard Bhoolai, 65, has been convicted of failing to pay taxes he withheld from employees’ wages.

He owned and operated Richie’s Fast Food Restaurants Inc., an S corp used to operate three area fried chicken restaurants since 1991. Bhoolai employed 22 to 34 employees between at least 2017 and 2018 and during that time withheld taxes from employees’ wages but did not pay them over to the IRS. Prior to that period, Bhoolai had not paid over such taxes from earlier years and the IRS had assessed a penalty against him.

Bhoolai instead used money from the businesses for his personal benefit, including gambling.

He faces up to five years in prison for each count of failure to pay taxes.

Bakersfield, California: Miguel Martinez, a Mexican national, has been sentenced to six years in prison for leading a $25 million fraud against the IRS.

From November 2019 through June 2023, Martinez, who previously pleaded guilty, led a scheme to file hundreds of fraudulent returns that claimed millions of dollars in refunds. He used stolen IDs to create fake businesses and report phony wage and withholding information for the businesses to the IRS. He then submitted hundreds of individual federal income tax returns in the names of still other individuals whose identities he had also stolen, claiming that those individuals worked for the fake businesses and were owed refunds based on the phony wage and withholding information.

Martinez used several people to allegedly help carry out the scheme, including a local tax preparer and a former IRS tax examiner who advised Martinez. In exchange, Martinez paid them thousands of dollars and took them out to lavish dinners.

The IRS paid out $2.3 million in refunds. When federal agents arrested Martinez and searched his three homes, he was found with $750,000 in fraudulent refund checks, ID cards for more than 200 individuals and multiple firearms that he could not lawfully possess due to his illegal status in the United States.

He also lied to government agents in the beginning of the investigation, initially saying that he had no knowledge of or involvement in tax prep for others and that he just sold gold and ran a party rental business. He also said that he did not know others who were involved in the scheme and had no relevant evidence.

Hands-in-jail-Blotter

Kansas City, Missouri: Tax preparer Ebens Louis-Loradin has been sentenced to 20 months in prison and ordered to pay $722,121 in restitution for a fraud in which he filed clients’ federal income tax returns that contained false information.

Louis-Loradin, a tax preparer since 2012 and who pleaded guilty earlier this year, prepared and filed 154 fraudulent returns that inflated his clients’ refunds by a total of nearly $1 million and boosted the fees he charged them.

He admitted that he engaged in the scheme from 2013 to 2020. Phony claims on the returns included dependents, inflated withholding amounts, credits for child and dependent care expenses, American Opportunity Credits and the Earned Income Tax Credit, itemized deductions and business losses.

The fraud caused a total federal tax loss of $953,873. Many of his clients, who told investigators they weren’t aware of the false items he placed on their tax returns, have been paying back the IRS for the refund overpayments.

Louis-Loradin also failed to file personal federal income tax returns for 2016 to 2018 and fraudulently used multiple IDs, including those of children, in his scheme.

Springbrook, Wisconsin: Gregory Vreeland, who owns and operates Wisconsin Great Northern Railroad of Spooner, Wisconsin, which provides recreational train rides and rail car storage and rail switching services, has been sentenced to a year and a day in prison for failure to pay employment taxes.

Vreeland, who previously pleaded guilty and who also co-owned and operated the Country House Motel and RV Park, was Great Northern’s president and the motel’s managing partner and was responsible for the companies’ financial matters, including the filing of employment returns. He failed to file employment tax forms for Great Northern from the end of 2017 through all of 2021 and failed to pay over the associated employee withholdings for that same period. Vreeland also failed to file employment tax forms for the motel from the third quarter of 2015 through the third quarter of 2020 and failed to pay over the associated employee withholdings for that same time. He used the withholdings to instead expand Great Northern’s operations and to buy a personal residence.

Vreeland received civil notices from the IRS for non-payment, which he initially ignored and made no attempt to cooperate with the service until it began levying his bank accounts.

Raleigh, North Carolina: Tax preparer Fwala Serge Muyamuna, 55, of Wake Forest, North Carolina, has pleaded guilty to 24 counts of aiding or assisting in the preparation of fraudulent returns and one felony count of obstructing justice.

Muyamuna was sentenced to 16 to 29 months in prison; the sentence was suspended and Muyamuna was placed on supervised probation for two years. Muyamuna was also ordered to serve four days in custody, pay $34,257.10 in restitution, perform 150 hours of community service and no longer prepare North Carolina tax returns.

Muyamuna, the manager, operator and tax preparer of Tax Experts/D & V Taxes and Accounting/DV Taxes, aided or assisted in the preparation of 24 false North Carolina individual income tax returns for clients for 2018 to 2021. Muyamuna also told a client to not cooperate with the investigation or speak with IRS agents.

Hanson, Massachusetts: Business owner Kenneth Marston has pleaded guilty to failing to pay employment taxes.

From 2015 through 2018, Marston owned and operated Bowmar Steel Industries, which engaged in steel fabrication, and Teleconstructors Inc., which provided installation services on cellular phone towers. During that time, Marston falsely treated his employees as independent contractors and failed to withhold employment taxes on more than $3.8 million in combined wages. Marston avoided reporting and paying $1 million in employment taxes owed to the IRS.

Failure to pay over taxes provides for up to five years in prison, three years of supervised release and a fine of $250,000 or twice the gross gain or loss, whichever is greater. Sentencing is Jan. 3.

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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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