Grand Jury Adds 4 More Indictments In Alleged Abusive Trust Tax Scheme

On January30th 2024 we posted Two Men Indicted On Charges Of Peddling Abusive Trusts, where we discussed that two men promoted and sold abusive tax shelters for the last six years by instructing their clients to use sham trusts to hide business income and illegally deduct personal expenses such as family weddings, according to an indictment in a Colorado federal court in the case of U.S. v. Conner et al., case number 1:23-cr-00390, in the U.S. District Court for the District of Colorado.

Larry Conner, who operated The Business Solutions Group from his home in Frisco, Texas, and Timothy McPhee, who operated Private Banking Concepts from his home in Estes Park, Colorado, told their clients the trust arrangement was legal, according to the indictment, unsealed On September 25, 2023.

The pair were charged with conspiring to defraud the government and multiple counts of helping clients prepare false tax returns. McPhee and his wife, Marcia Predmore, were also charged with evading their own federal income taxes by employing the abusive trust structure that McPhee is accused of promoting. 

Now According to Law360, a federal grand jury in Denver indicted four more people in connection with what prosecutors call a conspiracy to defraud the government in a multistate scheme to promote abusive tax shelters using sham trusts to hide business income and illegally deduct personal expenses such as family weddings.

According to a superseding indictment on April 24, 2024, one of those newly indicted, Roderick A. Prescott of California and Nevada, had agreed in 2003 to a permanent injunction barring him from promoting the so-called family or business trusts. In his role in the new scheme, for which Larry Conner of Texas and Timothy McPhee of Colorado were first indicted in September, Prescott used an alias to hide his injunction from clients, according to the new indictment.

Two others accused Suzanne Thompson of Montana and Weldon Wulstein of Nevada, ran bookkeeping and tax preparation businesses that helped the scheme's clients prepare false returns, assuring the clients that the shelters were legal ways to reduce tax liabilities, according to the indictment.

The fourth in the ring to be newly indicted is McPhee's wife, Marcia Predmore, who was accused in the original indictment of evading $2 million in federal income taxes with her husband by employing the abusive trust structure that he was accused of promoting.

All Four Were Charged With Conspiracy To Defraud
The U.S. And Helping Prepare False Tax Returns.

The indictment accused Prescott, Thompson and Wulstein of helping promote the scheme at seminars and workshops across the country, overseas and online. At some of those seminars Prescott taught about creating a "private family foundation" that was advertised as the last step in the shelter. He also directed clients to wire fees to the promoters' bank account, prosecutors said.

Thompson, who owned a bookkeeping service called The CFO Agency with offices in Montana and Wyoming, and Wulstein, who ran Wulstein Financial Services offering tax preparation from offices in Nevada and California, marketed their accounting and tax services at the seminars, according to court documents.

Predmore and McPhee additionally taught about the shelters under the name of a business they co-owned and ran out of their home in Colorado called Private Banking Concepts, the filings said.

Clients of the scheme were instructed to pay for personal expenses, including mortgage payments, dining costs and weddings, with money held in the trusts, prosecutors said. They were also told to direct assets including real estate and vehicles to the trusts to avoid the appearance of ownership and to avoid paying income taxes on capital gains from selling the assets.

The fraudulent federal tax filings cost the government tens of millions of dollars in tax losses, the indictment said.

Each defendant faces a maximum prison sentence of five (5) years for conspiracy to defraud the U.S. Conner, McPhee, Thompson and Wulstein additionally face up to three (3) years in prison for each count of assisting in the preparation of a false tax return. McPhee and Predmore face up to five (5) years in prison for each count of tax evasion.

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IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes!

On Febuary 11, 2022 we posted IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised! which lists multiple recent cases where the IRS Criminally prosecutes Employers for Failure To Pay Withheld Payroll Taxes. Since then we've had multiple blog posts of payroll tax prosecutions.

In September 2023 we found the following payroll tax prosecutions:

• Owner of Oregon Payroll Services Company Pleads Guilty to Employment Tax Scheme 09/01/2023 08:00 AM EDT An Oregon man pleaded guilty today to willfully failing to pay more than $24 million in payroll taxes owed to the IRS.

• Kansas Owner of Construction Firms Pleads Guilty to Employment Tax Scheme 09/01/2023 08:00 AM EDT  A Kansas woman pleaded guilty today to willfully failing to account for and pay over employment taxes to the IRS. 
• Owner of Kansas Metal Company Pleads Guilty to Employment Tax Scheme 09/01/2023 08:00 AM EDT A Kansas man pleaded guilty today to willfully failing to pay federal employment taxes.

This is further reinforced by Department of Justice’s Tax Division's statement that Civil and criminal employment tax enforcement is their highest priority.

 Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?

You Better Thank Again, if You Like Your Freedom!

 Have Payroll Tax Problems?

 

 Contact the Tax Lawyers at
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or Toll Free at 888-8TaxAid (888-882-9243) 

IRS Plans More Employment Tax Audits

According to Thompson Reuters former senior litigation counsel at the U.S. Department of Justice (DOJ) has stressed that since the IRS’ funding plan mentions more enforcement in areas that include employment taxes, businesses should start planning for audits "now." 

Funding . The Inflation Reduction Act was signed into law by President Joseph Biden on August 16, 2022, with a provision earmarking nearly $80 billion in funding for the IRS that Treasury Secretary Janet Yellen said on April 4, 2023 will help ensure fair enforcement of federal tax laws. On April 6, 2023, new IRS Commissioner Daniel Werfel and Deputy Treasury Secretary Wally Adeyemo held a conference to discuss the Service’s 10-year strategic operating plan for the massive financial support.

Employment tax audits part of plan. On page 74 of the 150-page plan, the IRS discusses developing enforcement approaches and compliance treatments for tax types including federal employment taxes by refining tools and processes for auditing key areas and using improved analytics to identify patterns of noncompliance. The plan notes that enforcement and compliance have been too low in employment tax, among other areas.

TIGTA report calls for audit improvements.  On February 13, 2023, the Treasury Inspector General for Tax Administration (TIGTA) released a report on the need for improvements to the employment tax examination process to increase taxpayer compliance and collection potential. The report explains that although employment tax workstreams are set up to focus on probable areas of noncompliance to show cases with a high potential for audit adjustments, the IRS does not have a computer program to prioritize employment tax returns.

The report made a handful of recommendations to the IRS, and now that the Service has funding that includes an estimated $4.8 billion for business system modernization and $25.3 billion for operations support, the employment tax audit process is likely to improve and may involve using more technology in selecting who will be subject to an examination. 

There are two steps that employers should take to prepare for an IRS employment tax audit. 

1. Is to make sure they have substantiation regarding an issue with the law so they can be prepared when the questions come from the IRS and 
2. To get advice from tax professionals on potential areas of concern where the IRS is likely to adopt scrutiny so you can prepare for it all.

What to do When Receiving a Notice

The IRS will typically send an audit notice indicating the type of audit, the scope of the audit, and the documentation required to support your payroll tax filings. It is crucial to take the time to review the notice and understand what is being requested so that you can provide the right information and documents. Start by gathering all the records and documentation related to your payroll taxes

Preparing for the Audit - Seeking Professional Help

When facing an audit, it is important to work with an experianced tax professional or lawyer who has expertise in dealing with the IRS and is familiar with the audit procedure. A professional tax advisor or lawyer can provide guidance on the types of records and documentation required by the IRS, help prepare and organize the necessary records, and ensure that all responses to the audit are accurate and timely.

Gathering necessary documentation is a crucial step in preparing for an IRS payroll tax audit. The IRS will request specific financial and payroll records that are relevant to the audit. It is important to gather all relevant records, including, but not limited to, the following:

• Payroll records
• Tax returns
• Bank account statements
• Pay stubs
• Payroll reports
• Any other financial records that pertain to the audit.

An IRS payroll tax audit is a complex process that can be stressful and time-consuming for business owners. However, understanding the steps involved in the process and seeking an experienced tax professional help can greatly reduce the burden.

 Have Payroll Tax Problems?

 

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

for a FREE Tax HELP Contact Us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888-8TaxAid(888-882-9243) 

Fiscal '23 IRS Audits Resulted in $32B in Additional Taxes!

According to the 2023 IRS Data Book, the Internal Revenue Service closed nearly 583,000 tax return audits in fiscal year 2023, resulting in $31.9 billion of recommended additional tax after examination, the agency said in its annual data book. 

Of those closed examinations, nearly 13,500 taxpayers representing 2.3% of closed return audits and $19.5 billion in recommended additional tax disagreed with the IRS' assessment, according to the Data Book.

22.7 percent of exams were conducted in the field, yielding over $24.1 billion in additional recommended tax.

The remaining 77.3 percent of audits were conducted via correspondence, resulting in almost $7.8 billion of additional recommended tax.

Fiscal year 2023 was a transitional year for the agency because of the additional long-term funding it received under the Inflation Reduction Act, Internal Revenue Commissioner Danny Werfel said in the data book's introduction.

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IRS Releases Digital Asset Draft Form 1099-DA

Under the broker information reporting rules, brokers must report transactions in securities to both the IRS and the investor. These transactions must be reported on Form 1099-B. A federal tax law passed in 2021 made broker information reporting rules also apply to cryptocurrency exchanges, custodians, or platforms (e.g., Coinbase, Gemini, or Binance), and to digital assets such as cryptocurrency (e.g., Bitcoin, Ether, or Dogecoin), effective for 2024 and later years. However, the IRS delayed the effectiveness of these rules until it issued final regulatory guidance. Thus, the rules won't become mandatory for brokers until the IRS issues that final guidance. Some cryptocurrency exchanges already send out Forms 1099-B to investors.

The IRS intends to have the cryptocurrency reporting done on a new form, Form 1099-DA.The new 2025 Form 1099-DA is generally expected to be included on federal income tax returns by taxpayers who answer "yes" to the digital asset question that asks if they, at any time during the relevant tax year, received, sold, exchanged, or disposed of a digital asset or financial interest in a digital asset. Common examples of digital assets to be reported include cryptocurrencies, stablecoins, and non-fungible tokens.

Under a set of rules separate from the broker reporting rules, when a business receives $10,000 or more in cash in a transaction, that business must report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300.

The same federal tax law mentioned above required businesses to treat cryptocurrency and other digital assets like cash, effective after 2023. Thus, businesses accepting payments of $10,000 or more in cryptocurrency, or in combined crypto and other cash, would have had to report that to the IRS (on IRS Form 8300). But IRS also delayed the effectiveness of these rules until it issues final regulatory guidance. Thus, until the IRS issues that final guidance, the rule counting crypto as cash for the cash-reporting rules doesn't apply.

If you use a cryptocurrency exchange or platform, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so.

If they haven't already done so, cryptocurrency exchanges and platforms, in addition to collecting information from their customers, will need to begin tracking the holding period and the buy and sell prices of the digital assets in customers' accounts.

Be aware that the transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency such as the U.S. dollar), but also exchanges of cryptocurrencies for other cryptocurrencies.

Please keep in mind that the cryptocurrency exchanges or platforms will probably not have all the information they need to meet their reporting requirements under the new rules. This may make the first year of reporting for digital assets challenging for investors, as well as exchanges and platforms.

Finally, these rules on required reporting by brokers and by businesses do not affect the taxability of cryptocurrency transactions. Cryptocurrency is regarded as property, and transactions in it can result in taxable gain that must be reported by a taxpayer. The receipt of cryptocurrency as payment is also a taxable event.

If taxpayers with cryptocurrency transactions failed to meet their U.S. tax compliance obligations, a voluntary disclosure should be considered. With the enhanced scrutiny by the IRS and the DOJ, a taxpayer always wants to get to the government before the government finds them.

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1st Tax Crypto Indictment is Proof That IRS is Coming After Undisclosed Crypto Income!

According to Law360, Federal prosecutors' first public indictment of an individual who underreported the capital gains from a nearly $4 million legal sale of bitcoin indicates that authorities have opened the floodgates for more criminal cases that deal purely with undisclosed gains on legitimate cryptocurrency transactions.

The criminal allegations against Frank Ahlgren III that federal prosecutors brought in a Texas federal court are novel in that unlike in previous cryptocurrency cases, the tax evasion allegations in Ahlgren's case did not stem from criminal activities such as money laundering, theft, human trafficking, illicit drugs, online black marketplaces, terrorism or defrauding investors.

Instead the indictment, which was made public Feb. 7, 2024, sought to go after taxes for unreported gains from legal transactions, such as an individual or business intentionally not reporting on their tax returns their substantial capital gains from selling stocks. 

The Case Confirms What Internal Revenue Service Criminal Investigation Chief Jim Lee Has Said For Months, The Unit
Has Seen A Surge Of Such Cases And Hundreds Of Them
Will Soon Be Made Public.

In the 10-page indictment, the U.S. Department of Justice accused Ahlgren of purposely failing to report the capital gains from bitcoin sales on his 2017, 2018 and 2019 tax returns, which, if true, would amount to false declarations under penalties of perjury.

Lee Has Repeatedly Said That Half Of IRS CI's Active
Crypto Caseload Now Involves Classic Tax Evasion,
Compared To Three Years Ago, When A Vast Majority Of The Digital Asset Transactions Were Tied To Money Laundering.

In unlike the previous cases McAfee, Elmaani, Zhong and other cryptocurrency cases, the four counts against Ahlgren do not link the tax evasion allegations to other criminal sources, such as money laundering, defrauding investors and theft.

Instead, the DOJ accused Ahlgren of splitting large sums of his earnings from bitcoin into individual bank deposit amounts of under $10,000 to avoid scrutiny from law enforcement. Such transactions — known as structuring are prohibited under Title 31, U.S. Code Section 5324(a) and can trigger investigations.

The indictment also said Ahlgren used $3.7 million in proceeds from selling approximately 640 bitcoins in 2017 to purchase a house in Park City, Utah. 

If the case ends up in trial, it will be interesting to see whether Ahlgren's defense attorneys can persuade the federal government that his conduct amounts to a civil or administrative infraction, rather than a crime. 

The IRS treats digital assets such as convertible virtual currency, cryptocurrency stablecoins and non-fungible tokens as property. The same general tax principles governing property are applied to taxable income from digital asset transactions.

Individuals and businesses must answer a digital asset question and report all income tied to the assets in several tax filings, including Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return. The question also appears on other forms, such as Form 1041, U.S. Income Tax Return for Estates and Trusts, and Form 1065, U.S. Return of Partnership Income.

The IRS has also been issuing John Doe summonses to cryptocurrency companies, such as Coinbase, and financial institutions to produce information on taxpayers who may have failed to report to the agency, and pay taxes on, digital asset transactions.

Many in the tax bar, including myself, believe that this Indictment will result in many amended Form 1040 tax returns being filed.

Have an Unreported Crypto Currency?

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