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Tax Fraud Blotter: Where’s my refund?

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Prime numbers; Power play; Great White sharks; and other highlights of recent tax cases.

Westbury, New York: Business owner Victor Aguayo has pleaded guilty to not collecting and paying over employment taxes from employee wages.

Aguayo was owner and president of Mabel Interior Design Inc., an interior painting business. He paid his employees some $3.6 million in cash wages but did not withhold or pay taxes from those wages. He also caused false quarterly returns to be filed that did not report those cash wages.

He caused a tax loss to the IRS of $545,743.

Sentencing is April 21. Aguayo faces up to five years in prison, as well as a period of supervised release, restitution and monetary penalties.

New Bedford, Massachusetts: Tax preparer Valentina Martinez, 50, has pleaded guilty to filing false returns to obtain fraudulent federal refunds.

Martinez worked for a national tax prep service. After preparing returns for clients and providing them copies, she added fraudulent claims for business deductions without clients’ knowledge and e-filed the returns.

Martinez caused the refunds to be deposited onto debit cards that she used to make ATM withdrawals and to pay for a Florida vacation and other purchases. Her scheme was discovered and her employment terminated when a taxpayer client complained to the prep service about a missing refund. By then, Martinez had already filed at least 12 false returns and caused more than $45,000 in losses to the IRS.    

Sentencing is March 6. The charge of theft of government money carries a maximum of 10 years in prison, three years of supervised release, a fine of $250,000 and restitution to the IRS. 

Palm Beach Gardens, Florida: Businessman Paul Walczak has pleaded guilty to not paying employment taxes and not filing his individual income tax returns.

Walczak controlled a web of interconnected health care companies operating under various names, including Palm Health Partners and Palm Health Partners Employment Services. At its peak, the latter employed more than 600 people and paid more than $24 million dollars annually in payroll.

From 2016 through 2019, Walczak withheld nearly $7.5 million in federal taxes from employees’ paychecks but did not pay over those taxes, despite having been penalized by the IRS in 2014 for not paying employees’ taxes. During this same period, Walczak also did not pay $3,480,111 of the business’s portion of his employees’ Social Security and Medicare taxes.

At the same time, he used more than $1 million from his businesses’ bank accounts to purchase a yacht, transferred hundreds of thousands of dollars to his personal bank accounts, and used the business accounts for personal spending at high-end retailers.

For 2019 through 2020, Walczak also did not file personal income tax returns.

Walczak caused a total tax loss to the IRS of $10,912,334.80.

Sentencing is Feb. 28. He faces a maximum of five years in prison for the employment tax charge and a year in prison for not filing income tax returns. He also faces a period of supervised release, restitution and monetary penalties. 

Independence, Missouri: Attorney John C. Carnes, 69, has pleaded guilty to evading $857,000 in income taxes.

Carnes admitted that he willfully attempted to evade paying his personal income taxes for 2012 through 2018. He kept his income in his attorney trust accounts, then withdrew cash to pay personal and business expenses.

Carnes had two trust fund accounts. He withdrew $444,527 in cash from one from 2016 through 2019 and $144,364 from the second from 2013 through 2015. He used the cash to gamble and pay personal expenses.

Carnes deposited $232,000 in fees received for services provided in the sale of the former Rockwood Golf Course property in November 2017 and the Missouri City Power Plant project, and other income, into his attorney trust accounts.

The total tax loss to the IRS for 2012 through 2018 totaled $618,949. He also had unpaid federal income tax for 1990 to 1993, 1996 to 2003 and 2005, totaling $175,590. Carnes also had Missouri unpaid income taxes totaling $62,922. 

From 2009 to 2020, the IRS continuously engaged in various forms of investigative and enforcement activity regarding his outstanding tax liabilities.

Carnes faces up to five years in prison. 

Hands-in-jail-Blotter

Lake Geneva, Wisconsin: William S. Gallagher, owner and manager of a swimming pool service and retail company, has pleaded guilty to one count of failure to truthfully account for and pay over federal employment taxes.

Gallagher’s company employed some 15 workers. For each quarter in tax years 2018 through 2020, Gallagher willfully failed to truthfully account for and pay over employment taxes. Dating back to 2014, the loss to the IRS totaled more than $606,000.

Sentencing is Jan. 30. Gallagher faces up to five years in prison and up to a $250,000 fine, as well as up to three years of supervised release after completing any imprisonment.

Jacksonville, Florida: Travis Morgan Slaughter and Tripp Charles Slaughter have pleaded guilty to conspiracy to commit mail and wire fraud and conspiracy to commit tax fraud related to a roofing business they operated.

Travis Slaughter has agreed to forfeit to the U.S. $2,780,947 he obtained from the mail and wire fraud offense and to pay $6,768,612 in restitution for the payroll tax loss, $2,780,947 for unpaid workers’ compensation insurance premiums and $271,217 for two paid workers’ compensation claims.

Tripp Slaughter has agreed to forfeit to the United States $416,800 he obtained from the mail and wire fraud offense and to pay $623,269 in restitution for the payroll tax loss, $416,800 for unpaid workers’ compensation insurance premiums and $137,778 for a paid workers’ compensation claim.

Since 2007, the Slaughters have operated a roofing business, first under the name Great White Construction, then under the name Florida Roofing Experts, and finally under the name 5 Star Roofing Services. Although the names changed, each business operated in the same manner, banked at the same financial institutions and employed the same employees. The company contracted with PEOs to prepare payroll checks for employees, after making deductions for payroll taxes, and to file payroll tax returns and forward tax payments to governmental authorities.

The company did not provide the PEOs with information about all the hours worked by, or all the wages due to, its employees. Instead, the company also paid the employees directly, with separate checks drawn on company bank accounts, and did not deduct payroll taxes from these checks. By paying employees with “split checks” — one from the PEO and one from the company — the company avoided paying the full amount of federal payroll taxes due.

During January 2017 through July 2020, the PEOs issued payroll checks to the employees totaling some $4,930,613, after deducting and paying over to the IRS the payroll taxes. During that same period, the company issued checks to the employees totaling some $18,545,845, with no payroll taxes being deducted or paid. The total unpaid payroll taxes on that amount were $2,768,377.

The PEOs also secured workers’ compensation insurance coverage for the company. The premiums charged by the workers’ compensation insurers were based on the total amount of payroll that the company reported to the PEOs. If the company had reported the actual amount of payroll, the insurers would have charged additional premiums totaling $2,780,947.

The Slaughters also underreported their personal income to the IRS. For 2014 through 2019, the total unpaid taxes due on Travis Slaughter’s unreported income totaled $2,467,183. For 2015 through 2019, the total unpaid taxes due on Tripp Slaughter’s unreported income totaled $263,614.

They each face a maximum of five years in prison for the tax fraud and up to 20 years in prison for the mail and wire fraud. 

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Accounting

Trump berates Republicans to ‘Stop talking,’ pass tax cuts

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Donald Trump listens to a question while speaking to members of the media before boarding Marine One on the South Lawn of the White House in Washington, D.C.
Donald Trump

Al Drago/Bloomberg

President Donald Trump called on members of his party to unite behind his economic agenda in Congress, putting pressure on factions of lawmakers who are calling for last-minute changes to the legislation to drop their demands.

“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”

Trump sent the post from Air Force One after departing the Middle East as the House Budget Committee was meeting to approve the legislation, one of the final steps before the bill can move to the House floor for a vote.

House Speaker Mike Johnson has set a goal to pass the bill next week before the House recesses for its Memorial Day break.

However, the the bill failed the initial committee vote — typically a routine, procedural step — with members of the party still sparring over the scope of the cuts to Medicaid benefits and how much to raise the limit on the state and local tax deduction.

Narrow majorities in the House mean that a small group of Republicans can block the bill. Factions pushing for steeper Medicaid cuts and for an increase to the SALT write-off have both threatened to defeat the bill unless their demands are met.

“No one group gets to decide all this stuff in either direction,” Representative Chip Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”

Trump’s social media muscle and calls to lawmakers have previously been crucial to advancing his priorities and come as competing constituencies have threatened to tank the measure.

But shortly after Trump’s Friday post, Roy and fellow hardliner Ralph Norman of South Carolina appeared unmoved — at least for the moment. Both men urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.

“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time”

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Accounting

97% say CPA firms not using tech efficiently says survey

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While CPA firms far and wide have made major technology investments over the years, the vast majority of accountants say they’re not being used to their full potential. 

This finding comes from a recent survey undertaken by CPA.com and payment solutions provider Bill. The 400-person poll found that nearly all respondents, 97%, say they use technology inefficiently and that additional training is needed to maximize return on investment. Further illustrating the point, 43% of respondents said that technology is making them do more manual work, not less, something. Becky Munson, an Eisner Amper partner specializing in outsourced accounting services, believes this reflects a failure of training and change management, as she has seen many who disliked a technology change develop manual workarounds specifically to avoid using the new solutions. 

“We see employees make workarounds with tech stacks, which makes headaches that I think align with this 43%. We train people on new things, we ask them to use them, and they keep doing what they were doing before and only use the technology as much as they have to [in order to] move things along while you have people well trained on the software keeping up,” she said in a webcast on Thursday about the survey. 

Inefficient

Ariege Misherghi—senior vice president and general manager of accounts payable, accounts receivable and the accountant channel—said the issue isn’t just because of firms but also vendors that don’t provide enough support, and may not necessarily understand the profession in the first place. 

“Too often I think tools aren’t fully aligned with the workflows they’re meant to support. In SaaS they talk about product-market fit, but in this profession it’s not just that but also product-firm fit, and maybe product-profession fit. Not every tool marketed to accountants was built by people who truly understand how this profession works: the rhythms, the regulations, the stakes, the relationships, all of that. And even the greatest tools can fall short if they’re not implemented with a deep understanding of how firms really operate,” she said. 

And sometimes the inefficiencies come from both sides at once: the survey found that only 37% of firms require clients to use their tech stack, something that Munson said “breaks my heart” as “it is so low.” A streamlined, established tech stack is needed to achieve true economies of scale, but to get there firms need to standardize their data, and to do that firms need to make sure their clients’ data is also standardized, which usually means integrated tech stacks. 

“If you have all these different clients with all these different technologies, even if your own tech stack is standardized the systems they use is different, so the kind of data you will get will be different, and the work you need to do to make it work with your data is different, and your team spends a lot of time spinning their wheels,” she said. “Once you get standardized, where everything back and forth from clients is the same, you get to see how well the teams can do their work.” 

One source of inefficiencies is a rushed implementation. Munson said that, too many times, firms are so eager to get a solution working that they don’t pay attention to all its capacities, just the ones they need right now, but once the basics are down firms still don’t circle back on the rest of the features and how they can be used to drive efficiency. 

“Most of us have been through an implementation, either in the practice or with a client, where you’re just like ‘anything to get it working. Forget about all the fancy things it does. We just needed to do the basics right,’ and then we never circle back on those better, more efficient processes. We get to sort of minimal viable, and then we forget to come back and give it an extra polish. And so what we see there is the processes get written for that basic piece, and we never update,” she said. 

But this is part of what both speakers believed was the larger problem of firms getting lost in the details of their tech stacks and not taking a broader, more holistic approach, which would enable more efficiencies. The key component to managing technology effectively, Munson said, is looking not at individual solutions here and there but thinking of the system as a whole. 

“Often, what happens is something’s wrong or something is troublesome in some way. And so [we say] what can we do to fix that one thing? And we don’t think about it holistically and get all the right folks in there so that we’re solving for the right pain points,” she said. 

Misherghi agreed, and added that this holistic extends not only to the technology a firm already has but the solutions they plan to purchase in the future. When evaluating what technology they need, she said leaders need to think not in terms of specific point solutions to particular problems but things that can support the entire workflow—plus, the onboarding, training and ongoing support from the vendor. 

“Don’t just look for features, right? Look for solutions that support your workflows from providers that understand you. For firms, onboarding and training and optimization can’t be an afterthought. They’re essential to realizing value. I think this is where vendor partnerships matter. Firms seeking the strongest results aren’t just using software, they’re collaborating with their providers, they’re staying educated, they’re making sure their tools evolve alongside their needs. The best outcomes happen when your technology partner acts like part of your team, not just part of your toolkit,” she said. 

Misherghi said that the more successful firms she’s seen think less in terms of performing particular tasks but designing an entire system that, through automation, can do those tasks for them. It is less about plugging holes and more about developing a full infrastructure. The survey found that 74% of participants have a detailed plan to add new services in the next 12 month; Misherghi noted that, among these firms, 86% have a detailed technology roadmap, which is “a wonderful mark on the evolution of the profession we’re seeing.” 

She said a good tech roadmap is more like a service design blueprint versus a shopping list. Successful firms, she said, are not just chasing features but designing intentional workflows and systems capable of scalable service delivery. Similarly, she stressed that the provider should be more than just a vendor but a strategic co-architect that can help with growing pains. 

Misherghi said this approach will become especially relevant as AI becomes more common, as integrations will be key to their effective use, which means thinking in terms of the whole system to understand where those integrations should take place. Right now, she said, people think of AI in terms of analyzing data or extracting fields, but with the rise of AI agents will require firms to focus more on coordinating between them. 

“I think the next big leap is when those systems don’t just talk to each other, they act on each other’s behalf. I think the next big inflection point will be moving from automated steps to autonomous workflows, where AI agents aren’t just analyzing data or extracting fields but actually orchestrating tasks across tools based on firm policies and context and that will change the role of the accounting profession: its less time doing the work and more time designing the system for how everything works together. So the firms that will be thriving are those who are building strong infrastructure now because that is what AI needs to deliver on its core value,” she said.

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Trump tax bill fails in House panel

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A key House committee on Friday failed to advance House Republicans’ massive tax-and-spending bill after hard-line conservatives bucked President Donald Trump and blocked the bill over cost concerns.

The House Budget Committee rejected the bill 21-16, with Republican Reps. Chip Roy, Ralph Norman, Josh Brecheen, and Andrew Clyde joining Democrats to vote against it. The four hardliners demanded deeper cuts to Medicaid and other government programs.

It’s incredibly rare for bills to fail at this step in the process, with the committee vote typically serving as a rubber-stamp to the bill before it moves to the House floor. 

Representative Chip Roy
Rep. Chip Roy

Stefani Reynolds/Photographer: Stefani Reynolds/B

The setback could be temporary and the panel can still approve the bill once the GOP differences are resolved. 

Republican Lloyd Smucker, who switched his vote to “no” to allow the committee to bring it up again, told reporters the committee will hold another vote on Monday. 

Trump, whose social media muscle and calls to lawmakers have previously been crucial to advancing his priorities, inserted himself in the debate less than two hours before the vote, berating dissidents and urging them to fall into line. 

“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”

The bill’s failure exposes the power a small group of lawmakers can wield as Republicans seek to push Trump’s “one big, beautiful bill” through the House with very narrow margins. GOP infighting threatens to kill the bill, or at least significantly delay Republicans’ plans to pass the bill next week.

(Read more:‘One big beautiful bill’ full of tax surprises.”)

Republican holdouts spelled out their demands during Friday’s committee meeting, including accelerating new work requirements for able-bodied adults on Medicaid to take effect immediately rather the 2029 deadline set in the legislation. The ultraconservatives also want a faster phase-out of clean energy tax credits.

It wasn’t immediately clear how House Republicans will re-group to address the divisions and advance the bill.

“I’ll let you know this weekend if we’re going to return first thing Monday. That’s the goal at this point,” Budget Chairman Jodey Arrington said after the vote. 

House Majority Leader Steve Scalise, who is helping to broker a deal among Republicans, said party leaders are in touch with the Trump administration to address some of the changes demanded by hardliners.

“We are all in agreement on the reforms we want to make,” Scalise said. “We want to have work requirements. We want to phase out a lot of these green subsidies. How quickly can you get it done?”

House Speaker Mike Johnson on Thursday pledged he would work through the weekend to broker a compromise between moderates, who are seeking an increase in state and local tax deductions, and ultra-conservatives, who say they won’t support it without more spending cuts.

(Read more:Here are the winners and losers in the Republican tax bill.“)

Members from both factions — the SALT Republicans representing high-tax districts and the fiscal hawks who want steeper budget reductions — have threatened to block the bill if House leaders don’t acquiesce to their demands. 

“No one group gets to decide all this stuff in either direction,” Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”

Both Roy and Norman urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.

“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time.”

If the legislation passes the House, it would then head to the Senate where it would likely undergo significant changes. Several members, including Senator Josh Hawley of Missouri, have stated opposition to the Medicaid cuts in the House bill.

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