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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.

Hands-in-jail-Blotter

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

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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