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Tax Fraud Blotter: Shipping and mishandling

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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.

Hands-in-jail-Blotter

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.

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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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Accounting

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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