Pardon us; no relief in sight; down on the farm; and other highlights of recent tax cases.

San Francisco: Winery co-owner Brian Fleury, 64, of Napa County, California, has pleaded guilty to aiding and assisting the preparation of a false return.

Fleury and his spouse owned the winery Metropolitan Wines and several vineyards in Napa Valley. For tax years 2014 through 2018, Fleury underreported Metropolitan’s income to his tax preparer. Fleury directed some customers to pay with checks directly to Fleury instead of to Metropolitan and wrote or told his employees to “off the books,” on some of these customers’ invoices. Fleury kept these payments for himself and did not report this as income.

Between 2014 and 2018, he underreported his and his spouse’s income by $822,450.

Fleury also admitted that from 2007 through 2019, he failed to pay federal excise tax that was due on brandy he received, possessed and sold, filing annual reports with the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau that he knew were false.  

In total, he caused a tax loss to the IRS and TTB of $211,092.

Washington, D.C.: President Trump has pardoned Paul Walczak of Palm Beach Gardens, Florida, two weeks after Walczak’s sentencing for tax crimes, according to news reports.

Walczak, who was convicted of evading more than $10.9 million in payroll taxes and sentenced to 18 months in prison and two years of supervised release, controlled a network of interconnected health care companies operating under various names, employing more than 600 people.

In 2011, Walczak did not pay two quarters of withheld taxes to the IRS. He evaded collection efforts and continued not paying over taxes from employees’ paychecks and keeping the money to fund what authorities called a lavish lifestyle, including the purchase of a yacht.

He caused a total federal tax loss of $10,912,334.80 and was also ordered to pay $4,381,265.76 in restitution. 

Walczak is the son of Betsy Fago, a longtime Republican donor who recently attended a Trump fundraising dinner, news reports said. Walczak’s attorneys also reportedly maintained that his family sold an engagement ring, a car and a $12.5 million home to repay the tax loss.

Trump was slated to pardon reality show stars Julie and Todd Chrisley, who were found guilty in 2022 of conspiring to defraud community banks out of more than $30 million. A jury convicted them of conspiracy to commit bank fraud, wire fraud and conspiracy to commit tax evasion. Trump has also reportedly pardoned former Republican Rep. Michael Grimm of New York, who was convicted in November 2014 of tax fraud and related charges stemming from his ownership of a Manhattan restaurant.

Athens, Georgia: Tax preparer Jessica Crawford, 34, who previously admitted filing more than $3.5 million in fraudulent returns tied to a multistate pandemic benefit scheme, has been sentenced to eight years in prison.

FBI agents investigating a multistate unemployment benefit scheme that was conducted during the pandemic discovered texts between conspirators and Crawford, a preparer with Crawford Tax Services. Crawford filed for PUA benefits on behalf of those individuals who had created fake businesses or submitted false information to steal benefits. In return, she received a percentage of the gains.

In 2022, an undercover IRS agent met Crawford to have their taxes prepared, and Crawford asked if the agent did anything on the side. At first the agent said no; Crawford replied that expenses could be deducted. The agent said he sometimes mowed an aunt’s lawn but provided no income or expense amounts. Crawford created a Schedule C business for landscaping on the agent’s federal return and prepared a 1040 and a fictitious Schedule C loss of $19,373, as well as claimed an Earned Income Tax Credit, a Child Tax Credit and a qualified business income deduction. As a result, the agent’s return claimed a fraudulent federal income tax refund of $12,359.

The IRS reviewed 1,261 returns filed by Crawford in tax years 2020 and 2021 and determined that she fraudulently filed returns on behalf of clients, resulting in losses to the IRS exceeding $3 million from false 7202 credits for sick leave and family leave, tax credits and dependent care credits.

Marina Del Rey, California: Elana Cohen-Roth, 81, a retired IRS agent, has been sentenced to 12 years in prison after being convicted of 23 felony offenses related to defrauding an elderly victim of her life savings.

Cohen-Roth exploited a professional and personal relationship she’d had with an elderly area resident. A retired IRS agent and professional tax preparer, Cohen-Roth began preparing the then 66-year-old victim’s taxes in 2013. From their friendship, Cohen-Roth gained access to all the victim’s financial information. Cohen-Roth told the victim she would invest in some type of real estate to earn at least 10% at “no risk.”

From December 2013 through September 2019, Cohen-Roth extended “investment opportunities” to the victim on more than 20 occasions in amounts from $25,000 to $150,000. Each time, the victim took money from her legitimate investments and wired it to Cohen-Roth.

Bank records revealed that Cohen-Roth was running a Ponzi scheme where other investors also deposited large sums into her account. Cohen-Roth used some of the elderly victim’s money to pay off these earlier investors and used the rest to support her lavish lifestyle and make gifts to family members.

By September of 2019, the victim had depleted her investment accounts and took out a reverse mortgage to send additional money to Cohen-Roth. The scheme collapsed in 2020 when the victim demanded a return of some of her money so that she could move near her family. Cohen-Roth did not have another source to repay the victim, who did not receive any of her money back.

A jury convicted Cohen-Roth of all 23 felony financial fraud charges. Because of her age, she was sentenced to the middle term of 12 years in state prison rather than the maximum of 28 years.

Richmond, Virginia: Tax preparer Baltej Singh Brar, 42, of South Richmond Hill, New York, has been sentenced to two years in prison for making false statements on loan applications he submitted for clients through pandemic relief.

Brar owned and operated Aspire Tax & Accounting Services and in 2021 began filing loan applications on behalf of other individuals through the Paycheck Protection Program. He advertised that he would file loan applications in exchange for an upfront fee and 10% of the loan value after approval.

Brar instructed prospective applicants to provide him with their Social Security numbers, a copy of their driver’s license, email address, prior bank statements, their 2019 return and a voided check to be used as supporting documentation. Most of Brar’s clients were sole proprietors, including taxi drivers, truck drivers and construction workers. Where clients’ prior year incomes fell below the threshold to receive the maximum PPP loan of $20,833, Brar inflated the income amounts in the applications. Brar caused the Small Business Administration at least $550,000 in losses.

Greensburg, Pennsylvania: Accountant Jonathan A. Weston, a resident of Canonsburg, Pennsylvania, has been sentenced to 27 months in prison and ordered to pay more than $8 million in restitution after being convicted of fraud conspiracy, conspiracy to commit money laundering and filing false income tax returns.

From October 2005 to January 2019, Weston, an accountant for Hillandale Farms Co., schemed with another employee to embezzle some $6.8 million from the company and launder the money through businesses they both controlled to buy collectible cars, real estate and other items. 

Between 2013 and 2018, Weston also either failed to file or filed false federal personal income tax returns, including filing a false return in which he underreported more than $500,000 stolen from Hillandale.

He was ordered to pay $6,870,128 in restitution to Hillandale Farms and $1,216,176 to the IRS. He was also ordered to forfeit assets from his crime, including a 2008 Aston Martin, a 1933 Ford Model 40 Coupe and a condominium.

The more value that investors can receive in the form of long-term capital gains rather than ordinary income, the less they will pay back to Uncle Sam.

Those in the 20 counties below ranked by the average net capital gains reported on their federal returns to the IRS are getting above-average appreciation on their assets with much lower tax rates, generally, than their incoming income, according to a study last month by advisor lead generation and client matchmaking service SmartAsset. The mix of areas known for a large concentration of wealthy residents and regions that don’t immediately come to mind as a home to lots of rich people offered only more evidence of the investment industry’s national scope.

For financial advisors and their clients, the list provided geographic insights into the potential wealth management client base in the areas, and a reminder of important state-level variations in taxes that could affect portfolios and after-tax yields.

“Net capital gains represent the profits a taxpayer recognizes from selling a capital asset after offsetting capital losses. These gains are often created by highly appreciated assets,” Kathy Buchs, a senior tax advisor, team leader and managing director with Cleveland, Ohio-based registered investment advisory firm MAI Capital Management, said in an email.

“We take geography into account when advising clients to sell an asset or consider tax loss harvesting due to state income tax ramifications,” Buchs continued. “For example, California is a high-tax state that does not have preferential rates for capital gains. Therefore, it tends to be much more expensive to recognize gains in that state as compared to others.” 

That difference in tax rules at the state level raises the possibility of strategies such as an incomplete gift non-grantor trust that, in some areas, could “eliminate the state taxation of the trust-owned portfolio,” said Richard Austin, an executive director for estate and business planning with San Diego and Waltham, Massachusetts-based RIA firm Integrated Partners. In some cases, investors can even offset their capital gains for federal tax purposes based on losses in other holdings, he noted in an email.

“Tax efficiency significantly impacts the performance of a client’s portfolio by maximizing the after-tax return on investments,” Austin said. “Investing across different countries and regions can reduce portfolio volatility. Markets in different parts of the world often have low correlation, meaning they don’t always move in the same direction at the same time. If one market experiences a downturn, others might perform well, potentially stabilizing overall returns and the potential for future capital gains. State-specific tax rates impact tax efficiency of a portfolio. The difference in state income taxes creates a significant layer of complexity in achieving tax efficiency for a client’s portfolio.”

Even though any type of data presents the possibility of noise factors affecting any particular region, the study “highlights that taking geography into account is essential when advising clients on their asset allocations,” said Michelle Ash, a senior wealth advisor with the Jacksonville, Florida-based office of RIA firm Mercer Advisors.

“Net capital gains is measured when a person is selling assets, and so it requires past investment success to be in that position,” Ash said in an email. “It’s no surprise to me that Florida would be the top state by this metric. Florida has no state income, inheritance or estate taxes, and so it’s a beneficial place to live when you’re selling assets. These Florida traits also attract a lot of retiring individuals who may be selling assets like homes and businesses when they retire or move.”

In focusing on capital gains, SmartAsset sought to home in on the areas where investors netted the most gains with preferential rates compared to ordinary income, according to the report’s author, SmartAsset Director of Economic Analysis Jaclyn DeJohn.

“Net capital gains, the profits from selling assets like stocks, real estate or businesses, are a key measure of investment success and regional wealth,” DeJohn wrote. “Overall, high net capital gains can signal robust markets and affluent populations, with realized gains potentially boosting local economies through tax revenues and spending.” 

Besides the listing below, here are some of the other interesting takeaways from the study:

• Three Georgia counties, Chattahoochee, Quitman and Taliaferro, displayed the smallest average net capital gains, at $2,400 or less. Fewer than 10% of returns in the counties had net capital gains.

• At the state level, West Virginia tax returns had the lowest average net capital gains at $14,612, followed by Wisconsin with $19,590 and Iowa with $20,220.

• On the other end of the spectrum among the states, federal returns out of Florida ($84,911), Wyoming ($84,246), Nevada ($77,491), the District of Columbia ($58,733) and Texas ($52,926) reported the highest average net capital gains.

Scroll down the slideshow for the ranking of the top 20 counties in the U.S. in terms of average net capital gains. To see a list of the top 10 cities with the highest income among retirees, click here. For the group of the top 20 metropolitan areas where financial advisors’ median pay increased the most last year, follow this link.

Note: The below rankings are based on a report by SmartAsset called, “Where Americans Earn the Most From Investments.” The study crunched the latest tax return data for the 2022 tax year released by the IRS across 3,022 U.S. counties and for each of the 50 states and the District of Columbia. The data include average net capital gains and investment-yield figures like taxable and tax-exempt interest and ordinary and qualified dividends.

The Internal Revenue Service has been facing staffing and budget cutbacks that threaten its ability to carry out its responsibilities, which include overseeing the troubled nonprofit hospital sector.

The report, released earlier this month by the Treasury Inspector General for Tax Administration in response to a request in 2023 from four senators, found that “vague and outdated guidance” is creating challenges for oversight of tax-exempt hospitals. TIGTA noted that the Affordable Care Act requires the IRS to evaluate the community benefit activities of tax-exempt hospitals at least once every three years. In response, the IRS created a group to conduct compliance reviews, known as Community Benefit Activity Reviews, to make sure hospitals adhere to the federal requirements to maintain their tax-exempt status.

Revenue Ruling 69-545 outlines the community benefit standard applicable to tax-exempt hospitals and includes examples of six factors that can demonstrate a tax-exempt hospital’s community benefit. But the vague definition of community benefit makes it hard for both hospitals and the IRS to determine if hospitals are offering enough community benefits to justify their tax exemption. 

Other factors, including whether a hospital provides financial assistance to those unable to pay, are relevant in determining whether a hospital is providing a benefit to the community, the report noted. However, the Internal Revenue Code doesn’t specify what eligibility criteria or level of assistance provided is considered to be adequate for a financial assistance policy to meet the statutory requirements. “Vague or unclear eligibility criteria could potentially cause confusion for patients and inconsistent application of the requirements across hospitals,” said the report.

In April 2022, the IRS revised the scope of its CBARs to focus only on the Affordable Care Act’s statutorily required community benefit standard. As a result, examination referrals dropped 98% from fiscal years 2022 through 2024. 

To address the reduced amount of oversight due to the streamlined CBAR process, the IRS implemented a compliance strategy that aimed to identify potential noncompliance by tax-exempt hospitals. Using the IRS’s data, TIGTA did an analysis of the available filing information to identify tax-exempt hospitals potentially subject to the CBARs and compared it to the IRS’s population of tax-exempt hospitals. TIGTA identified 142 missing tax-exempt hospitals that the IRS should have included in its population but weren’t identified or reviewed. In addition, the IRS excluded 14 governmental unit and 13 church-affiliated hospitals from the population for other reasons. 

TIGTA made four recommendations in the report, suggesting the Treasury Department’s Office of Tax Policy consider a legislative proposal to amend Section 501 of the Internal Revenue Code and any other required provisions of law to define the community benefit standard and establish baseline criteria for tax-exempt hospital financial assistance policy eligibility. TIGTA also recommended the IRS should update its guidance to include reasons for excluding dual status governmental unit and certain church-affiliated hospitals from the CBARs because they are statutorily mandated. The IRS agreed with all four of TIGTA’s recommendations and plans to implement corrective actions.

“The IRS appreciates TIGTA’s analysis and the opportunity to consider improvements in the tax administration of tax-exempt hospitals,” wrote Robert Choi, acting commissioner of the IRS’s Tax-Exempt and Government Entities Division. He pointed out that the Government Accountability Office agreed with TIGTA that Congress should consider specifying in the Internal Revenue Code what services and activities it considers sufficient community benefit to improve the IRS’s ability to oversee tax-exempt hospitals.That would enable the IRS to issue updated regulations that provide more specific guidance. 

However, the IRS will likely face difficulties given the cuts in its staffing and budget in carrying out such oversight. The Trump administration has also emphasized deregulation rather than increased regulation, and the Supreme Court’s decision last year in the Loper Bright case may also constrain its regulatory abilities. Nevertheless, complaints have mounted about tax-exempt hospitals not providing adequate services to their communities. The TIGTA report notes that in 2022, 2,987 (49%) of 6,120 hospitals nationwide were nongovernment, nonprofit hospitals. According to an analysis of Medicare cost reports, 2,927 nonprofit hospitals received $37.4 billion in tax benefits in 2021. However, in 2023, according to the Lown Institute, out of 1,773 nonprofit hospitals it evaluated, 77% spent less on charity care and community investment than the estimated value of their tax breaks.