The Securities and Exchange Commission has rescinded a Staff Accounting Bulletin on safeguarding cryptocurrency assets that had been criticized by the industry and even by some of its own commissioners. 

In Staff Accounting Bulletin 122, the SEC essentially withdrew some of the interpretive guidance in Staff Accounting Bulletin 121, which had been issued in 2022. The move is another sign of a more crypto friendly environment in the Trump administration. Trump has named Paul Atkins, a former SEC commissioner who has been a strong crypto proponent, as the next SEC chairman after the departure on Inauguration Day of Gary Gensler, who had led an enforcement crackdown on the industry.

SAB 121 had provided guidance for companies holding crypto assets on the risks they faced, including technological, regulatory and legal risks, and how they should account for their obligations to safeguard crypto assets for their users, along with the disclosures they should provide to the SEC staff. The guidance said companies should present a liability on their balance sheet to reflect their obligation to safeguard the crypto assets held for their users.

The new Staff Accounting Bulletin, SAB 122, rescinds the interpretive guidance and says an “entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability, by applying the recognition and measurement requirements for liabilities arising from contingencies” citing the Financial Accounting Standards Board’s standard on loss contingencies, as well as an applicable international accounting standard. The rescission could be done on a fully retrospective basis in annual periods beginning after Dec. 15, 2024, or companies can elect to effect the rescission in any earlier interim or annual financial statement period included in filings with the SEC after the effective date of the latest SAB. The guidance says entities should include clear disclosure of the effects of a change in accounting principle upon initial application of this rescission.

The original Staff Accounting Bulletin had drawn opposition in Congress, with both the Senate and House voting to repeal it last year. However, President Biden soon vetoed the bill.

SEC commissioner Hester Peirce has opposed the Staff Accounting Bulletin. She was named Monday to head a new crypto task force at the SEC by acting chair Mark Uyeda and posted on X about the withdrawal. “Bye, bye SAB 121! It’s not been fun,” she wrote, linking to the new Staff Accounting Bulletin.

A banking group also praised the move. “We welcome the SEC’s decision to rescind Staff Accounting Bulletin 121,” said Paige Pidano Paridon, senior vice president and co-head of regulatory affairs at the Bank Policy Institute, in a statement. “Today’s decision restores banks’ ability to serve as a trusted and secure option for clients that choose to custody digital assets.”

Noted once more; a lot of shingles; refund’s in the mail; and other highlights of recent tax cases.

Shipping and mishandling

Orlando, Florida: Arthur Grimes, of Ocoee and Orlando, Florida, has been sentenced to 21 months in prison for obstructing the IRS in connection with his use of the “Note Program,” a tax fraud.

From 2015 to 2018, Grimes was a client of a scheme promoted by Jasen Harvey and Christopher Johnson which involved Harvey and Johnson filing returns for clients that claimed that large non-existent withholdings had been paid to the IRS and that sought refunds based on those withholdings.

Grimes caused four false income tax returns prepared by Harvey to be filed that sought refunds totaling $627,587, of which the IRS paid some $270,000. When the IRS tried to recover a refund issued to Grimes based on one of those returns, Grimes made false statements and submitted false documents to an IRS revenue officer and transferred funds to a nominee bank account.

Harvey and Johnson previously pleaded guilty to conspiring to defraud the IRS and have been sentenced to prison.

Grimes was also ordered to serve a year of supervised release and to pay some $238,973 in restitution to the United States.

Hillsville, Virginia: Business owner Timothy Agnew has pleaded guilty to filing returns underreporting his income from his construction company.

He owned and operated Red Hill Construction, which repaired and installed roofs, remodeled homes and built home additions. Between 2017 and 2021, Agnew filed personal returns that substantially underreported his gross receipts and income from the company; he omitted more than $2 million in gross receipts earned from construction projects for which the customers did not directly report those payments to the IRS through 1099s.

Agnew caused a tax loss to the IRS of more than $375,000.

Sentencing is April 3. He faces up to three years in prison, as well as a period of supervised release, restitution and monetary penalties. 

Green Bay, Wisconsin: Business owner Douglas Larson has pleaded guilty to failure to truthfully account for and pay over federal employment taxes.

Larson owned and operated Mods International, later known as Mods Client Services, which manufactured and installed residential and commercial buildings out of shipping containers. Late last year, the U.S. government alleged that Larson had failed to pay over some $396,082.77 in employment taxes for each quarter from January 2018 through September 2021.

Parties agreed in the plea agreement that Mods and a related company that Larson owned and operated failed to pay over employment taxes that they’d withheld, as well as employment taxes they owed before and after the period above. The total tax loss agreed to was $1,102,805.13.

Sentencing is April 4. Larson faces up to five years in prison and up to a $250,000 fine. He also faces up to three years of supervised release after any prison term.

Missoula, Montana: Guy S. Cook, of Dripping Springs, Texas, owner of a business that operated in Belgrade, has pleaded guilty to tax evasion.

The government alleged that from about January 2014 to November 2021 in Belgrade, Cook tried to evade paying income taxes for 2014 and 2015.

He owned Bacterin International, which developed clinical medical laboratories. In 2014, Cook sold his shares in the company and obtained $2,467,176 in capital gains. He reported this income in 2014 and 2015, including taxes due totaling $643,884. Cook did not pay these amounts to the IRS, though his tax preparer told him he was required to do so.

Between 2017 and 2021, Cook took steps to avoid paying his taxes, including using business bank accounts and a company credit card to pay more than $300,000 of his personal expenses and debts; using nominee bank accounts to remove more than $380,000 from his business for personal use; and converting more than $600,000 in his salary to stock in his business.

Cook faces up to five years in prison, a $100,000 fine and three years of supervised release.

Sewell, New Jersey: Jose Camilo Perez Jr. has admitted to evading more than $3.4 million in taxes.

Perez controlled a company that digitized medical records for hospitals and other health care entities. From 2016 through 2023, the business received more than $8 million for its services. Perez tried to evade assessment of federal income taxes by cashing checks payable to the business at a check cashing business rather than depositing those checks into the business bank account or his personal bank account; he used the cash for personal expenses and to pay payroll.

From 2016 through 2023, he did not report to the IRS any of the income he received from the business. As a result, Perez evaded income taxes of more than $3.4 million.

The tax evasion charge carries a maximum of five years in prison and a $250,000 fine. Sentencing is May 20.

Roanoke, Virginia: Herman Estes has pleaded guilty to real estate and tax fraud related to his scheme to obtain a $1.3 million area home.

He pleaded guilty to conspiring to commit wire fraud, wire fraud, mail fraud, bank fraud and filing false claims against the United States.

In March 2023, after filing a false amended 2021 income tax return claiming he was entitled to a refund of $18.3 million, Estes made a $1.3 million cash offer for a property and provided a proof-of-funds letter that he’d merely created using an online form. He also provided the real estate agent with contact information for his co-conspirator, purportedly his trust manager who had authority to approve the offer.

As payment for the property, Estes tendered a fraudulent cashier’s check that he had signed in the amount of $1,307,199.43, purportedly drawn on the Federal Reserve Bank of Richmond. Funds in that amount were debited to the settlement company’s trust account before the check was identified as fraudulent.

In March 2023, Estes filed another false return claiming he was entitled to a $2.9 million refund.

Estes faces up to 20 years in prison for the wire fraud conspiracy, wire fraud and mail fraud counts, up to 30 years for bank fraud and up to five years for the false claims counts, plus additional potential penalties related to the commission of these offenses while released on bond. He also faces a period of supervised release, restitution and monetary penalties.

Providence, Rhode Island: Former personal injury attorney Peter P.D. Leach has been sentenced to 33 months in prison, to be followed by two years of supervised release for wire fraud and tax evasion.

At the time of his guilty plea, Leach admitted that he forged client signatures and deposited client settlement checks into his attorney IOLTA account, using those funds to pay personal expenses and to repay earlier clients whose funds he had embezzled. Leach repeatedly lied to clients about the status of their cases and told them that he would pay their medical expenses and other bills with settlement funds he’d received.

Leach also admitted that from 2014 to 2019 he took multiple steps to conceal his gains from the IRS, including by making false statements on IRS forms regarding his assets; making false statements to revenue officers about his ability and willingness to pay his taxes and about his withdrawal of more than $540,000 cash from his IOLTA accounts for payment of personal expenses; and by transferring money from his client account to the account of family members to make personal payments.

He was also ordered to pay restitution to his victims totaling $299,774.41. In a separate restitution matter, the court is expected to enter an order that Leach pay $320,622.76 to the IRS, representing taxes he failed to pay to the agency.

The Supreme Court lifted an injunction on the Corporate Transparency Act and its beneficial ownership information reporting requirement that had been imposed by a federal appeals court.

The lower courts will continue to hear arguments over the law, which requires companies to file reports on their true owners to the Treasury Department’s Financial Crimes Enforcement Network as a way to deter illicit activity such as money laundering, tax fraud, drug trafficking and terrorism financing by shell companies. New businesses were required to start filing the beneficial ownership information reports with FinCEN last year and existing ones to file the BOI reports starting Jan. 1 of this year. But a series of court decisions in recent weeks in federal district courts and appeals courts in Texas have alternately paused and reinstated and again paused the requirement, prompting the Justice Department to file an emergency request with the Supreme Court to lift the injunction.

The Supreme Court stayed the injunction against the CTA, leaving it to the U.S. Court of Appeals for the Fifth Circuit to weigh the case, Different panels on the appeals court have taken contrasting approaches to the law, reversing course in late December. Even with the injunction lifted in the case that came before the Supreme Court involving a Texas business called Texas Top Cop Shop, an injunction and stay was recently imposed in a separate case in Texas by a different court involving another pair of plaintiffs, Samantha Smith and Robert Means. The group representing the plaintiffs in that case, the Texas Public Policy Foundation, insisted the stay would remain in place despite the Supreme Court’s move lifting the injunction in the Texas Top Cop Shop case. 

Even the Supreme Court justices seemed divided. Concurring with the grant of the stay, Justice Neil Gorsuch wrote, “I agree with the Court that the government is entitled to a stay of the district court’s universal injunction. I would, however, go a step further and, as the government suggests, take this case now to resolve definitively the question whether a district court may issue universal injunctive relief.”

Justice Ketanji Brown Jackson believes it’s too soon for the Supreme Court to step in, and she dissented from the grant of the stay. “However likely the Government’s success on the merits may be, in my view, emergency relief is not appropriate because the applicant has failed to demonstrate sufficient exigency to justify our intervention,” she wrote. “I see no need for this Court to step in now for at least two reasons. First, the Fifth Circuit has expedited its consideration of the Government’s appeal. Second, the Government deferred implementation on its own accord—setting an enforcement date of nearly four years after Congress enacted the law—despite the fact that the harms it now says warrant our involvement were likely to occur during that period.  The Government has provided no indication that injury of a more serious or significant nature would result if the Act’s implementation is further delayed while the litigation proceeds in the lower courts. I would therefore deny the application and permit the appellate process to run its course.”

It’s unclear at this point how the appeals court will rule, and FinCEN has not yet updated its guidance. 

“The Supreme Court turned the CTA back ‘on,’ lifting the stay and allowing enforcement,” said Leila Carney, a member of the law firm Caplin & Drysdale. “The Supreme Court may simply be tossing the ball back to the agency. With the administration change and an incoming U.S. Treasury nominee, Mr. Bessent, FINCEN itself could pump the brakes on enforcement. The agency suffers little harm by delaying (as Justice Jackson pointed out), while filers can’t un-file. Unfortunately, taxpayers are back where they started—on edge and awaiting guidance, but they should remain prepared to file to avoid penalties.”

The National Federation of Independent Business, which was behind the lawsuit in the Texas Top Cop Shop case, issued a statement on Thursday in reaction to the Supreme Court move. 

“Today’s decision is a setback for small business,” said Beth Milito, vice president and executive director of NFIB’s Small Business Legal Center, in a statement. “Hopefully, Treasury recognizes the chaos that will ensue by requiring 32 million small businesses to imminently file their BOI information while the constitutionality of the reporting requirements is determined. As the next steps become clear, NFIB will inform small businesses on how to proceed.”

Corporate transparency advocates were heartened by the Supreme Court order, “The resumption of enforcement of the CTA is a blow to fentanyl dealers, human traffickers, terrorists, corrupt foreign leaders and other criminals that use anonymous companies to launder the proceeds of their illegal activities,” said Scott Greytak, director of advocacy for Transparency International US,  in a  statement. “Nearly 85% of all countries in the world have committed to collecting beneficial ownership information to protect against abuse of their financial systems. It is astonishing that the plaintiffs in this case believe the United States isn’t capable of doing the same. The order from the Supreme Court to stay this injunction should serve as a clear sign to the other courts currently weighing misguided challenges to the CTA that the law is constitutional.”

“For years, police and prosecutors have tried to combat a flood of dirty money associated with often violent crimes, but that can’t happen if they run into a wall of shell companies and secrecy,” said Ian Gary, executive director of the FACT (Financial Accountability and Corporate Transparency) Coalition, in a statement. “Today’s order is a reminder of the urgency of opening the money trail so our law enforcement officials can crack down on criminals who abuse the system.”

The on again, off again nature of the CTA hasn’t been resolved yet, and may remain on hold due to the other court case. The Texas Public Policy Foundation said the CTA would remain stayed because the stay it secured in the Eastern District of Texas earlier this month is still in effect nationwide.

“The CTA, part of the National Defense Authorization Act for FY 2021, imposes burdensome reporting requirements on small businesses,” said the group. “TPPF argues the Act exceeds Congress’s power under the Commerce Clause. As the judge who issued the order emphasized, TPPF’s case is based on different facts and arguments from the one in front of the Supreme Court. It is not affected by the Supreme Court’s order.