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Tax Fraud Blotter: Place your bets

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Close personal relationships; home is where the scam is; tort trouble; and other highlights of recent tax cases.

Los Angeles: Mathew R. Bowyer, of San Juan Capistrano, California, has agreed to plead guilty to running an illegal gambling business that took in unlawful sports bets, including from professional athletes as well as a former Major League Baseball Japanese-language interpreter who now faces prison time.

Bowyer operated an unlicensed and illegal bookmaking business that focused on sports betting and violated a California law that prohibits bookmaking. Bowyer’s gambling business remained in operation for at least five years until October 2023 and at times had more than 700 bettors.

He operated this business out of various locations in Los Angeles and Orange Counties as well as in Las Vegas. Bowyer also employed agents and sub-agents — including casino hosts — who worked for his illegal gambling business who were paid a portion of the losses that bettors incurred.

One of Bowyer’s clients was Ippei Mizuhara, who pleaded guilty on June 4 to one count of bank fraud and one count of subscribing to a false return. Mizuhara was the Japanese-language interpreter and de facto manager of baseball superstar Shohei Ohtani. Mizuhara admitted to stealing nearly $17 million from Ohtani to pay off gambling debts and to failing to pay tax on his gambling income.

Authorities consider Ohtani a victim; Mizuhara’s sentencing is Oct. 25.

From September 2021 to January 2024, Mizuhara placed at least 19,000 bets with Bowyer’s gambling business. During this time, Mizuhara had total winning bets of at least $142,256,769, and total losing bets of at least $182,935,206, leaving Mizuhara owing approximately $40,678,436.

Bowyer admitted in his plea agreement to knowingly and willfully falsely reporting his taxable income to the IRS on his 2022 return: Bowyer reported $607,897 in total income but his unreported income for that year was $4,030,938 — income from his illegal gambling business. Bowyer owes additional taxes of $1,613,280 for 2022, not including interest and penalties.

Bowyer has agreed to plead guilty to operating an unlawful gambling business, money laundering and subscribing to a false return. He faces up to 10 years in prison on the money laundering count, up to five years for the unlawful gambling business and up to three years for the false return. 

Madison, Wisconsin: David Swartz, of Highland Park, Illinois, has been sentenced to two years in prison for wire fraud and assisting in the preparation of a false return. 

Swartz worked as an unregistered investment advisor and fund manager and had a close personal relationship with his first victim, a resident of Madison. Beginning in January 2009, the victim made regular and periodic investments in Swartz’s investment fund with the understanding that Swartz was conservatively investing. 

Beginning in 2018, Swartz began misrepresenting the performance of the fund. When the fund lost significant value in February 2020 due to risky trades, Swartz lied to the victim about the fund’s performance and induced them to invest an additional $150,000. Swartz also produced a doctored Charles Schwab account statement for the fund and a phony K-1 for 2019.

Relying on the falsified document, on Oct. 12, 2020, the victim filed a 1040 for 2019 that substantially overreported capital gains, causing the victim to report owing an unjustified amount of federal income tax.

Swartz, who pleaded guilty in April, was also ordered to pay $181,915 in restitution to the victim.

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Bristol, Vermont: Jodi Lathrop has been sentenced to 15 months in prison following her guilty plea to charges of wire fraud and federal tax evasion.

In 2023, a federal grand jury returned an indictment charging Lathrop with 11 counts of mail and wire fraud, four of personal tax evasion and four of aiding the preparation of false corporate returns. Lathrop pled guilty to one count of wire fraud and one of tax evasion.

Between 2014 and 2020, she embezzled from Claire Lathrop Band Mill, a logging and wood chipping business, while serving as the company’s office manager and bookkeeper. She used company credit cards to make personal purchases and used company money to pay off personal credit cards and other personal expenses. Lathrop falsely recorded unauthorized checks in company books and caused the company to file returns that falsely deducted Lathrop’s personal expenses as legitimate business expenses.

She was also ordered to pay some $479,000 in restitution and a $15,000 fine and two years of supervised release after her prison term.

Rockwood, Pennsylvania: Resident Jason R. Svonavec has been sentenced to a year and one day in prison, to be followed by one year of supervised release, and ordered to pay a fine of $40,000 and restitution of $207,378 (which has already been paid) to the IRS on his conviction of tax evasion and filing false income tax returns.

Svonavec evaded taxes in 2017 by illegally expensing the construction of his home in Somerset, Pennsylvania, through entities he operates called Heritage Coal and Natural Resources LLC and Banshee Crane. In 2018, he filed a tax return reporting false tax deductions for Heritage Coal.

Scranton, Pennsylvania: Robert J. Powell, of Palm Beach, Florida, has pleaded guilty to tax evasion in connection with substantial legal fees he earned while associated with a local law firm.

Powell sought to dodge a substantial federal tax bill for 2016 by using nominee bank accounts, causing an accountant to file a request for a filing extension that falsely reported zero estimated tax liability for 2016 and making false statements during an IRS audit in 2019.

Powell’s license to practice law was suspended in 2009 and he was disbarred in 2015. In 2009 he relinquished his ownership of the Powell Law Group but retained the right to collect 90% of the remainder of any future fees collected by the firm after firm expenses.

The Powell Group represented thousands of plaintiffs in a mass tort litigation in 2015 for which Powell was expected to receive some $120 million in attorneys’ fees. Prior to the attorneys’ fees disbursement, the Powell Group and its co-counsel used those future legal fees as collateral to obtain a series of loans totaling more than $125 million.

Instead of depositing the loan money into the firm’s bank accounts and paying firm expenses, Powell directed the loans to nominee bank accounts under his control then used the money for personal debts and expenses, as well as his and his former law partner’s personal benefit. In June 2016, most of the attorneys’ fees were finally disbursed and the loans repaid. 

Still, Powell did not file a personal income tax return and pay taxes on the receipt of the fees in that year. After the initial disbursement and through October 2019, an additional $12 million in attorneys’ fees was distributed and the Powell Law Group’s share continued to be directed into nominee bank accounts that Powell controlled. Powell personally received an additional $3.6 million of the fees. For 2010 through 2022, Powell did not file income tax returns despite receiving and spending other personal income.

In 2019, when the IRS commenced an audit, he lied to revenue agents to conceal his income and expenditures for 2014 through 2016, claiming that his only source of funds were loan advances, that he and his spouse did not have signature authority or control over other bank accounts and that he had no ownership in any corporations.

Powell agreed to pay full restitution to the IRS.

Morgantown, West Virginia: Dr. David M. Anderson has admitted to filing a false return.

He filed false tax returns that understated his taxable income, causing a loss to the IRS of $143,599.

Anderson faces up to three years in prison. 

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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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