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Tax Fraud Blotter: Pro and con

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J’accuse; just a little boost; independent thinking; and other highlights of recent tax cases.

Los Angeles: A wholesale clothing importer and two of its executives have been found guilty of avoiding the payment of more than $8 million in customs duties and of running a scheme in which the company laundered money and failed to report more than $17 million from cash transactions.

A jury has found the following guilty:

  • C’est Toi Jeans, which imported apparel and exported clothing;
  • Si Oh Rhew, of La Cañada Flintridge, California, C’est Toi’s president and a majority owner of the company; and,
  • Lance Rhew, of Los Angeles, Si Oh Rhew’s son, a C’est Toi corporate officer and the owner of another Los Angeles-based company, GLLR Inc., that did business as C’est Toi.

The jury found C’est Toi and Si Oh Rhew guilty of two conspiracies and multiple counts of failure to file reports of currency transactions over $10,000 in a trade or business. The jury also found all three defendants guilty of three counts of entry of falsely classified goods, three counts of entry of goods by means of false statements, three counts of passing false and fraudulent papers through a customhouse and two counts of international promotional money laundering.

C’est Toi was found guilty of an additional two concealment money laundering counts involving drug proceeds. Si Oh Rhew was found guilty of an additional two counts of aiding, assisting and procuring the filing of a false return. Lance Rhew was found guilty of one additional count of aiding, assisting and procuring the filing of a false return; Lance Rhew was also found guilty of one conspiracy count.

C’est Toi was owned by Si Oh Rhew and his wife and received bulk cash from drug trafficking as payment for customer invoices. The company and Si Oh Rhew failed to file currency transaction reports and concealed the cash receipts from an accountant who prepared their taxes, which led to the fraudulent omission of more than $17 million in gross sales from returns filed with the IRS. The defendants also avoided customs duties and tariffs by purchasing garments from overseas manufacturers, including from China, but then submitting false information to U.S. Customs and Border Protection. Overall, C’est Toi imported goods that were undervalued by more than $51 million, causing approximately $8.4 million in unpaid tariffs and duties.

Sentencing is Jan. 21, when the Rhews will each face decades in prison and the company will face fines of as much as $100 million.

Roanoke, Virginia: Resident Alisha Warrick, 40, who pleaded guilty last year to wire fraud, distributing fentanyl and illegally selling firearms, has been sentenced to 10 years in prison.

Beginning in 2015 and continuing at least through 2019, Warrick prepared and filed tax returns for others and included false and fraudulent information in the returns. She would “boost” the returns by including false employment and wage information or false information about dependents, or both. Warrick also filed returns for some individuals without their knowledge and used those individuals’ names and personal ID information to file.

While on bond pending trial, Warrick arranged to sell heroin (which later testing showed to contain fentanyl) and two firearms, one of which was connected to a prior fatal shooting in the Roanoke area.

West Orange, New Jersey: Tax preparer Michael Ewell Sr., of Milford, Pennsylvania, has been sentenced to a year and a day in prison and a year of supervised release, according to news reports that added that his tax prep businesses filed returns with false information.

Ewell, who previously pleaded guilty, owned Ewell Tax Center and between 2015 and 2022 prepared 157 income tax returns that contained false information, according to cited IRS information, adding that the exaggerated returns resulted in an additional $824,835 in refunds. The false information reportedly included itemized deductions, business expenses and education credits.

On his personal returns between 2017 and 2020, he also underreported his company’s gross revenue by $81,116 and exaggerated its business expenses by $6,338, causing him to avoid paying about $118,000 in taxes, officials told news outlets.

Ewell will also have to pay $736,581 in restitution and is barred from preparing an income tax return for anyone except for himself, reports added.

Hands-in-jail-Blotter

Woodbridge, New Jersey: Accountant Thomas Kohutich, 34, has been sentenced to a year and a day in prison for filing false returns.

A former accountant for a New Jersey-based manufacturing company, he filed 1040s for 2018 and 2019 on his and his wife’s behalf. He failed to report funds that he embezzled from his former employer and which he knew constituted reportable income.

Kohutich, who previously pleaded guilty, was also sentenced to one year of supervised release and ordered to pay $234,821 in restitution to the IRS and $829,457 to his former employer.

Charleston, West Virginia: Accountant Luther A. Hanson has pleaded guilty to willful failure to pay over taxes.

From at least 2015 to September 2020, Hanson did not withhold or pay over some $149,905.37 in federal employment taxes for two employees of his accounting services businesses. Hanson owns and operates The Estate Planning Group Inc. and L.A. Hanson Accounting Services; the two employees provided services for both.

Hanson admitted that some time before June 30, 2015, he and the two employees agreed that he would begin treating them as independent contractors. Hanson knew this arrangement would relieve him of paying the employer portion of the employment taxes to the IRS and of withholding from the two employees. Hanson paid gross wages by check to the employees though neither changed their job duties or responsibilities.

Sentencing is Jan. 30. Hanson faces up to five years in prison, up to three years of supervised release and a $250,000 fine. He also owes restitution.

Somerville, Massachusetts: Tax preparer Yves Isidor, 68, has been convicted of preparing false returns. He was convicted of five counts and acquitted on one count.

From at least 2012 through 2020, Isidor operated a tax prep business under the name Tax and Realty Pro to file more than 1,200 returns in the names of clients, charging $100 to $500 per return. Isidor added false information to six returns to claim deductions for fictitious medical and dental expenses, gifts to charities and unreimbursed employee business expenses, resulting in inflated refunds or falsely lower tax liabilities.

Six taxpayers testified that Isidor had never discussed the false items with them, and they were not aware he had inserted them into their returns. An undercover agent also testified that he was present and observed the defendant create a false return.

The counts of aiding and assisting in the filing of false federal returns each provide for up to three years in prison, a year of supervised release, a fine of $250,000 and restitution. Sentencing is Feb. 6.

Miami: A federal district court has issued a permanent injunction against tax preparer Niclas Pierre and his prep business, Niclas Tax and Express Inc., and a permanent injunction against Elius Bessard and his prep business, Bessard Immigrations and Tax Services LLC.

The injunctions bar Pierre and Bessard from preparing returns, working for or owning a tax prep business, assisting others to prepare returns, or transferring a list of clients. The court also ordered Pierre to pay $563,000 and Bessard $208,000 in gains received from their tax prep businesses. Pierre and Bessard each agreed to both the injunction and the order to pay.

The complaint alleged that the two prepared returns claiming false or fabricated deductions and credits, including fabricated residential energy credits, false and fraudulent deductions, and inflated business expenses. Pierre and Bessard each prepared more than 1,000 returns for clients over the past six years.

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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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