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Tax Fraud Blotter: Questionable resources

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To the mat; extra help; FACS of the case; and other highlights of recent tax cases.

Corona, California: Tax preparer Salvador Gonzalez has been sentenced to six years in prison for preparing false returns for clients.

For more than a decade, Gonzalez operated the tax prep business Grace’s Lighthouse Resource Center and during that time consistently claimed false deductions such as charitable donations and medical expenses on thousands of returns he prepared for clients. He also directed his clients to create sham corporations and fraudulently deduct such personal expenses as their mortgage, car and utility payments as business expenses.

Gonzalez, who previously pleaded guilty, caused a total federal tax loss of at least $28 million.

The court also ordered him to serve a year of supervised release and to pay $403,908 in restitution to the United States. The federal government also filed a civil complaint against Gonzalez that seeks to permanently enjoin him from preparing, assisting in, directing or supervising the preparation or filing of federal tax returns, amended tax returns or other related documents or forms for others. Gonzalez consented to the entry of the civil judgment and permanent injunction.

New York: Gregory Gumucio, of Colorado, leader of a nationwide yoga business, has pleaded guilty in connection with a conspiracy to commit tax evasion.

Gumucio was the longtime leader of Yoga to the People, from which he received more than $3.5 million in income between 2012 and 2020. He did not file individual or business returns or pay any income taxes for at least eight consecutive years.

In or around 2006, Gumucio founded To the People, which was originally donation-based. Over the following years, the enterprise opened some 20 studios or affiliated entities throughout New York City and in various other places, including California, Colorado, Arizona, Florida and the State of Washington.

From 2010 to 2020, To the People and its affiliates generated gross receipts of more than $20 million yet never filed a corporate return with the IRS. From approximately 2012 through 2020, Gumucio never filed a personal return with the IRS or paid any income taxes. During the period, Gumucio enjoyed an extravagant lifestyle, which included frequent foreign travel; expensive hotels, meals and clothing; NFL season tickets; and country club payments.

Gumucio and his conspirators used various methods to evade taxes, including accepting yoga students’ payments in cash; failing to maintain a corporate headquarters or keep corporate books and records; using nominees to disguise Gumucio and his co-conspirators’ connection to various entities; and maximizing unreported income.

Gumucio faces up to five years in prison. He has agreed to pay $2,560,300.93 in restitution to the IRS.

Slidell, Louisiana: Tax preparer Celina Bolton-Fultz, 35, has pleaded guilty to 30 counts of assisting in filing false returns, five counts of filing her own false returns, four counts of making false statements and two counts of theft of government funds.

From 2018 through 2022, Bolton-Fultz submitted 30 false returns for seven clients of her tax prep business, fraudulently inflating their income by adding fake “household help” income to their returns to fabricate and inflate tax credits. She also fraudulently reduced her own income on her returns for 2017 through 2021, fraudulently reducing her gross receipts and reporting false expenses for businesses that she owned.

Bolton-Fultz also pleaded guilty to two frauds concerning the CARES Act. She pleaded guilty to four counts of making false statements for submitting applications in 2020 and 2021 for Paycheck Protection Program loans in which she submitted fake tax forms and provided false information about her businesses’ payroll. She also pleaded guilty to two counts of theft of government funds for making fraudulent applications for Economic Injury Disaster Loans, inflating her businesses’ revenues and expenses and submitting false tax documents.

In total, she received $204,103 in funds through the fraudulent applications. She has agreed to pay at least $405,133 in restitution to the IRS and the Small Business Administration.

She faces up to three years in prison for each tax count, five years for each of the PPP fraud counts and 10 years for each of the EIDL fraud counts; she faces a fine of up to $100,000 for each of the tax counts and up to $250,000 for each of the PPP and EIDL fraud counts, or the greater of twice the gross gain to the defendant or twice the gross loss. Bolton-Fultz also faces supervised release of up to three years for the PPP and EIDL fraud counts and up to a year for the tax counts, as well as a special assessment fee for every count to which she pleaded guilty. Sentencing is Jan. 23.

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Walled Lake, Michigan: Former CPA Paul Kozowicz, 75, has pleaded guilty to evading some $318,000 in federal income taxes.

His guilty plea arose out of a scheme that, according to court papers, resulted in his intentional failure to report more than $1.1 million in taxable income to the IRS over nine years. Between around 2002 and 2011, Kozowicz worked as a full-time salaried employee providing accounting and financial services for a law firm in Birmingham, Michigan.

In 2011, that firm reorganized, and Kozowicz became a part-time employee of the firm, making approximately 20% of his previous salary. To replace his lost income, Kozowicz became an independent contractor and provided accounting and consulting services to several other businesses.

Kozowicz formed FACS Inc., which purported to be the entity that provided these accounting and consulting services. He opened a bank account in the name of FACS but did not declare any of the income he earned using the name FACS on any individual or corporate tax return between 2011 and 2019. He also did not maintain any corporate books or records for FACS, nor did he observe or respect any other corporate formalities such as the State of Michigan’s annual corporate filing requirements.

In addition, according to the plea agreement, Kozowicz treated the monies deposited in the FACS account as his own and used the money freely for personal expenses and needs. Yet on his personal federal income tax returns, the only income Kozowicz declared was his reduced law-firm salary and certain taxable Social Security receipts. FACS never filed a corporate tax return.

Kozowicz further admitted that between 2011 and 2019, he earned some $1.15 million in unreported income through FACS and evaded payment of approximately $318,243 in tax.

Sentencing is Jan. 21. He faces up to five years in prison and must pay $318,243 in restitution to the IRS.

Randolph, New Jersey: Business owner Joseph Caravella has pleaded guilty to tax evasion for evading employment tax penalties.

Caravella owned several masonry companies and from 2008 to 2016 the IRS assessed some $650,000 in Trust Fund Recovery penalties against him for causing three masonry businesses that he owned to not pay their federal employment taxes.

From around March 2008 through around April 2019, Caravella sought to evade the payment of these penalties by placing companies that he controlled in the names of nominee owners and avoiding using a bank account in his own name. During that time, he continued to cause his businesses not to pay employment taxes, resulting in an additional loss of $1.2 million to the IRS.

In total, Caravella caused a federal tax loss of $1,885,519.39.

Sentencing is March 18. He faces up to five years in prison, a period of supervised release, restitution and monetary penalties.

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Accounting

Tax Fraud Blotter: Partners in crime

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Captive audience; some disagreement; game of 21; and other highlights of recent tax cases.

Barrington, Illinois: Tax preparer Gary Sandiego has been sentenced to 16 months in prison for preparing and filing false returns for clients. 

He owned and operated the tax prep business G. Sandiego and Associates and for 2014 through 2017 prepared and filed false income tax returns for clients. Instead of relying on information provided by the clients, Sandiego either inflated or entirely fabricated expenses to falsely claim residential energy credits and employment-related expense deductions.

Sandiego, who previously pleaded guilty, caused a tax loss to the IRS of some $4,586,154. 

He was also ordered to serve a year of supervised release and pay $2,910,442 in restitution to the IRS.

Ft. Worth, Texas: A federal district court has entered permanent injunctions against CPA Charles Dombek and The Optimal Financial Group LLC, barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies.

The injunctions also prohibit Dombek from preparing any federal returns for anyone other than himself and Optimal from preparing certain federal returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.

According to the complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a scheme throughout the U.S. to illegally reduce clients’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or improperly claim personal expenses as business deductions. As alleged by the government, Dombek also promoted himself as the “premier dental CPA” in America.

The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed clients’ returns reflecting the sham transactions, expenses and deductions.

The government contended that the total harm to the Treasury could be $10 million or more.

Kansas City, Missouri: Former IRS employee Sandra D. Mondaine, of Grandview, Missouri, has pleaded guilty to preparing returns that illegally claimed more than $200,000 in refunds for clients.

Mondaine previously worked for the IRS as a contact representative before retiring. She admitted that she prepared federal income tax returns for clients that contained false and fraudulent claims; the indictment charged her with helping at least 11 individuals file at least 39 false and fraudulent income tax returns for 2019 through 2021. Mondaine was able to manufacture substantial refunds for her clients that they would not have been entitled to if the returns had been accurately prepared. She charged clients either a fixed dollar amount or a percentage of the refund or both.

The tax loss associated with those false returns is some $237,329, though the parties disagree on the total.

Mondaine must pay restitution to the IRS and consents to a permanent injunction in a separate civil action, under which she will be permanently enjoined from preparing, assisting in, directing or supervising the preparation or filing of federal returns for any person or entity other than herself. She is also subject to up to three years in prison.

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Los Angeles: Long-time lawyer Milton C. Grimes has pleaded guilty to evading more than $4 million in federal taxes over 21 years.

Grimes pleaded guilty to one count of tax evasion relating to his 2014 taxes, admitting that he failed to pay $1,690,922 to the IRS. He did not pay federal income taxes for 23 years — 2002 through 2005, 2007, 2009 through 2011, and 2014 through 2023 — a total of $4,071,215 owed to the IRS. Grimes also admitted he did not file a 2013 federal return.

From at least September 2011, the IRS issued more than 30 levies on his personal bank accounts. From at least May 2014 to April 2020, Grimes evaded payment of the outstanding income tax by not depositing income he earned from his clients into those accounts. Instead, he bought some 238 cashier’s checks totaling $16 million to keep the money out of the reach of the IRS, withdrawing cash from his client trust account, his interest on lawyers’ trust accounts and his law firm’s bank account.

Sentencing is Feb. 11. Grimes faces up to five years in federal prison, though prosecutors have agreed to seek no more than 22 months.

Sacramento, California: Residents Dominic Davis and Sharitia Wright have pleaded guilty to conspiracy to file false claims with the IRS.

Between March 2019 and April 2022, they caused at least nine fraudulent income tax returns to be filed with the IRS claiming more than $2 million in refunds. The returns were filed in the names of Davis, Wright and family members and listed wages that the taxpayers had not earned and often listed the taxpayers’ employer as one of the various LLCs created by Davis, Wright and their family members. Many of the returns also falsely claimed charitable contributions.

Davis prepared and filed the false returns; Wright provided him information and contacted the IRS to check on the status of the refunds claimed.

Davis and Wright agreed to pay restitution. Sentencing is Feb. 3, when each faces up to 10 years in prison and a $250,000 fine.

St. Louis: Tax attorneys Michael Elliott Kohn and Catherine Elizabeth Chollet and insurance agent David Shane Simmons have been sentenced to prison for conspiring to defraud the U.S. and helping clients file false returns based on their promotion and operation of a fraudulent tax shelter.

Kohn was sentenced to seven years in prison and Chollet to four years. Simmons was sentenced to five years in prison.

From 2011 to November 2022, Kohn and Chollet, both of St. Louis, and Simmons, who is based out of Jefferson, North Carolina, promoted, marketed and sold to clients the Gain Elimination Plan, a fraudulent tax scheme. They designed the plan to conceal clients’ income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity. Kohn and Chollet fabricated the fees.

Kohn and Chollet advised clients that the plan’s limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.

Simmons earned more than $2.3 million in commissions for selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons.

Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.

In total, the defendants caused a tax loss to the IRS of more than $22 million.

Each was also ordered to serve three years’ supervised release and to pay $22,515,615 in restitution to the United States.

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On the move: KSM hired director of IT operations

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Hannis T. Bourgeois celebrates 100 years with charitable initiative; KPMG and Moss Adams release surveys; and more news from across the profession.

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AICPA wary of new PCAOB firm metrics standard

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The American Institute of CPAs is still concerned about the Public Company Accounting Oversight Board’s new firm and engagement metrics standard, despite some modifications from the original proposal. 

During a board meeting Thursday, the PCAOB approved two new standards, on firm and engagement metrics, and firm reporting. Both would have significant implications for firms. 

Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. The metrics cover the following eight areas:

  • Partner and manager involvement;
  • Workload;
  • Training hours for audit personnel;
  • Experience of audit personnel;
  • Industry experience;
  • Retention of audit personnel (firm-level only);
  • Allocation of audit hours; and,
  • Restatement history (firm-level only).

The AICPA reacted cautiously to the announcement. “We’re still studying the components of the final firm metrics requirements but, as we stated in our comment letter to the PCAOB this past summer, these rules will place a significant burden on small and midsized audit firms and could lead some to exit public company auditing altogether,” said the AICPA in a statement emailed Friday to Accounting Today. “This is not just conjecture: a majority of respondents (51%) to a recent survey we did of Top 500 firms with audit practices said they would rethink engaging in public company audits if the requirements were approved.”

AICPA building in Durham, N.C.

The PCAOB it made some modifications to the original proposal in  response to the comments had received since April:

  • Reduced the metric areas to eight (from 11);
  • Refined the metrics to simplify and clarify the calculations;
  • Increased the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and,
  • Updated the effective date. (If approved by the SEC, the earliest effective date of the firm-level metrics will be Oct. 1, 2027, with the first reporting as of September 30, 2028, and engagement-level metrics for the audits of companies with fiscal years beginning on or after Oct. 1, 2027.)

The AICPA welcomed those changes but doesn’t think they go far enough. “We’re glad the PCAOB took some comments to heart by extending implementation dates, particularly for smaller firms, and lowering the number of required metrics,” said the AICPA. “But the potential consequences of the remaining requirements — reduced competition and market diversity in the public audit space — are a significant risk. We hope the SEC will give these unintended outcomes the weight they deserve before giving final approval to the requirements.”

The Securities and Exchange Commission would still need to give final approval to the standard, as well as the new firm reporting standard. Last week, the PCAOB decided to pause work on its controversial NOCLAR standard, on noncompliance with laws and regulations, until next year. On Thursday, SEC chairman Gary Gensler announced he would be stepping down in January, which may affect the timing of its approval or disapproval by the SEC. With the incoming Trump administration, the SEC is expected to take a far less aggressive stance on enforcement and regulation. On Friday, the SEC announced that it filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history.

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