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Tax Fraud Blotter: Reached their limit

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Fell a little short; oh brother; only one hitch; and other highlights of recent tax cases.

Tacoma, Washington: The second of two Nigerian men residing in Canada who defrauded U.S. pandemic aid programs has been sentenced to 54 months in prison for wire fraud and aggravated ID theft.

Fatiu Ismaila Lawal was extradited from Canada last July and pleaded guilty in September. Lawal and co-defendant Sakiru Olanrewaju Ambali used the stolen IDs of thousands of workers to submit more than 1,700 claims for pandemic unemployment benefits to more than 25 states. The claims sought some $25 million, but the conspirators obtained some $2.7 million, primarily from pandemic unemployment benefits.

Lawal admitted that he submitted claims for $1,345,472. He submitted at least 790 unemployment claims using the stolen IDs of 790 workers and established four internet domain names that were used for fraud.

Between 2018 and November 2022, Lawal used stolen personal information to submit 3,000 income tax returns for $7.5 million in refunds. The IRS detected the fraud and paid just $30,000. The two conspirators tried to use the stolen American IDs for Economic Injury Disaster Loans, submitting some 38 applications. The Small Business Administration paid only $2,500.

Lawal and Ambali had the proceeds of their fraud sent to cash cards or to “money mules” who transferred the funds according to instructions given by the conspirators. They also allegedly used stolen IDs to open bank accounts and have the money deposited directly into those accounts.

Lawal, who received a substantial portion of the scam’s proceeds, was ordered to pay $1,345,472 in restitution. Ambali was sentenced to 42 months in prison last  March.

Houston: Clothing business owner Philip Ogbeide has admitted making fraudulent and false statements on his federal returns.

Ogbeide signed false U.S. individual income tax 1040s from 2018 through 2022 to receive inflated, undeserved refunds. His returns included false entries claiming fraudulent itemized deductions and undeserved credits. He also omitted income from his clothing business and from the proceeds of a fraud scheme.

He admitted that because of the false deductions and unreported income, he owes the U.S. Treasury $166,929.

Sentencing is April 15. Ogbeide faces up to three years in prison and a $250,000 fine.

Washington, D.C.: A federal court has issued a permanent injunction barring tax preparer Chris Elmer, of Sacramento, California, from preparing federal returns for others after Oct. 14, 2010.

The permanent injunction also bars Elmer’s tax prep company, Associated Tax Planners Inc., and its principals (Elmer’s sons and son-in-law) from promoting a variety of improper tax schemes; it also requires Elmer to divest himself of his interest in Associated. Elmer and the co-defendants consented to the entry of the injunction.

The government’s complaint alleged that Associated repeatedly claimed false or inflated business deductions, many of which were allegedly claimed as business expenses of sham partnerships. The complaint also alleged that in many instances the defendants claimed purported partnership business losses on clients’ individual returns regardless of whether the customers had a partnership or other business.

The government asserted that the defendants often did not file a corresponding partnership return when their customers reported partnership losses on their individual returns or fabricated IRS tax ID numbers for the partnerships.       

The terms of the order also require that any of the remaining defendants (other than Chris Elmer) who wish to continue to prepare returns for others must pass the IRS’s Enrolled Agent’s exam within three years. The injunction also provides for appointment of a neutral monitor to evaluate whether Associated is abiding by terms of the injunction.       

Hands-in-jail-Blotter

LaPorte, Indiana: Raymond Calvin Smith and Bruce Milik Smith, brothers, have been sentenced after pleading guilty to federal felony charges.

Raymond Smith was sentenced to 70 months in prison and two years of supervised release. Bruce Smith was sentenced to 39 months in prison and two years of supervised release. 

From about January to December 2021, the Smiths operated a scheme using Indiana mobile sports wagering applications. Using such personal information of victims as bank account numbers and passwords, they set up dozens of accounts in victims’ names on at least eight different wagering applications and funneled money from victims’ bank accounts to themselves.

The Smiths stole a total of $723,832.64 and unsuccessfully attempted to steal an additional $930,782. Both brothers pleaded guilty to the mail fraud; Raymond Smith also pleaded guilty to evading taxes on the proceeds he received in 2021.

The two brothers were ordered to pay $723,832.64 in restitution to the victims of their offense, and Raymond Smith was ordered to pay $162,928.62 in restitution to the IRS.

Montgomery, Alabama: Tax preparer Cynthia Lee Price, 50, of Cape Coral, Florida, has been sentenced to two years in prison for filing false returns, according to published reports.

News outlets said Price, who worked at No Limit Tax Pro in Montgomery, admitted to preparing fraudulent returns for herself and others from 2017 to 2022, resulting in illegal refunds. Price also reportedly falsified her 2021 return and inflated a client’s charitable contributions to increase the refund.

The total loss to the IRS reportedly exceeded $532,000.

After her prison sentence, Price will be on supervised release for a year and will pay a $15,000 fine along with restitution to the IRS, news outlets added.

Boston: Richard Cooper, of Billerica, Massachusetts, owner of a local paving company, has been sentenced to six months in prison for a multiyear income tax evasion scheme.

From 2017 to 2020, in addition to depositing customer payments into bank accounts in the name of his company, Rick Cooper Paving, Cooper also cashed more than $5.1 million in customer checks. When Cooper had his taxes prepared, he did not tell his preparer about the checks he was cashing, resulting in his returns underreporting the business’ gross receipts by millions. Cooper kept more than $1.1 million that he should have paid in federal and state income taxes.

Cooper, who pleaded guilty in October, was also sentenced to two years of supervised release and ordered to pay $989,819 in restitution to the IRS.

Gardner, Kansas: Business owner Marvin Vail has been sentenced to 17 months in prison for failing to forward more than $1 million in employment tax collections to the IRS.

As owner and operator of Marvin’s Tow Service, Vail failed to pay employment taxes for at least 23 calendar quarters from 2012 to 2017. IRS agents interviewed the office administrator for the company and were told Vail wouldn’t allow the administrator to pay the owed federal taxes.

Vail was also ordered to pay $1,512,283 in restitution to the IRS.

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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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Accounting

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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