This beauty's a steal; what a Lady; medical miscreants; and other highlights of recent tax cases.
Durham, North Carolina: Businesswoman Carol Jean Darrow, of Raleigh, North Carolina, has pleaded guilty to failure to pay $346,775 in withheld employee payroll taxes.
Darrow is the co-owner and operator of The Auto Finders, a car dealership. Darrow managed the financial affairs of the dealership, including approving payments to creditors and handling payroll taxes. Between 2016 and 2021, Auto Finders continuously failed to meet federal payroll tax obligations.
She faces up to five years in prison.
Greenbelt, Maryland: Tax preparer Kymberly Starr has been sentenced to 15 months in prison for preparing false returns for clients.
Starr, now of Minnesota, owned and operated The Tax Lady, a.k.a. 5 Starr Business Solutions, a tax prep business in Maryland. From 2013 to at least 2018, she inflated clients' federal refunds by preparing and submitting returns that claimed fraudulent tax deductions and fictitious business profits and losses. Her conduct resulted in some $400,000 in tax loss to the IRS.
Additionally, in 2020 and 2021, Starr obtained more than $83,000 in Paycheck Protection Program loans by submitting fabricated IRS forms containing bogus businesses and business income. Starr also used fabricated federal tax forms to file a false claim for unemployment insurance with the Maryland Department of Labor, from which she received more than $55,000.
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Manville, New Jersey: C.R. Kraus has been convicted of conspiracy to commit healthcare fraud, five acts of healthcare fraud and four counts of tax evasion in connection with a conspiracy to steal from a state program designed to help victims of brain injuries.
In January 2023, Kraus's conspirators, Harry Pizutelli and Maritza Flores, pleaded guilty to conspiracy to commit healthcare fraud and tax evasion relating to defrauding the New Jersey Traumatic Brain Injury Fund of millions of dollars.
The TBI Fund is a publicly funded state program to provide services and support to New Jersey residents who have suffered a traumatic brain injury. After a prospective patient applies, TBI Fund personnel review the application and, if approved, the patient is authorized to secure designated services from a third-party vendor. The vendor or service provider submits an invoice to the TBI Fund for payment. When an invoice is received, TBI Fund personnel review the invoice to ensure that the patient had been approved to receive the services. Pizutelli was the manager of the TBI Fund; he supervised, managed and oversaw the process by which third-party vendors were paid for services.
From 2009 through June 2019, Pizutelli, Kraus and Flores defrauded the fund by misappropriating more than $4 million in fraudulent vendor payments for services that were never provided. Pizutelli orchestrated these fraudulent payments to maintain and further romantic or sexual relationships with Flores, including more than $940,000 in fraudulent distributions to Flores and more than $3.245 million in fraudulent distributions to Kraus.
Flores and Kraus also evaded a substantial amount of income taxes by making material misstatements and omissions on their federal returns and significantly underreporting their income from the fraud.
The healthcare fraud conspiracy charge and substantive healthcare fraud charges to which Kraus was convicted each carry a maximum of 10 years in prison and a maximum fine of $250,000. The tax evasion charges each carry up to 10 years in prison and a maximum fine of $250,000. Sentencing is Oct. 8.
Charlotte, North Carolina: A federal jury has convicted two tax attorneys and an insurance agent of conspiring to defraud the U.S. and of helping clients file false returns based on promotion and operation of a fraudulent tax shelter.
From 2011 to November 2022, Michael Elliott Kohn and Catherine Elizabeth Chollet, both attorneys and residents of St. Louis, and David Shane Simmons, a licensed insurance agent and broker in Jefferson, North Carolina, promoted, marketed and sold a fraudulent tax scheme known as the Gain Elimination Plan. The trio designed the plan to conceal their clients' income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity; Kohn and Chollet actually fabricated the fees.
Kohn and Chollet advised clients that the plan's limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charity. The death benefit was directly tied to the anticipated profitability of the clients' businesses and how much of the clients' taxable income was intended to be sheltered.
Simmons earned more than $2.3 million in commissions from selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons. Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.
In total, the defendants caused a tax loss to the IRS exceeding $4 million.
They face a maximum of five years in prison for the conspiracy charge and a maximum of three years for each charge of aiding and assisting in the preparation of false returns. Simmons also faces up to three years for each count of filing false personal returns.
Salt Lake City: Ashley Robinson, of Farmington, Utah, has been sentenced to a year and a day in prison for evading taxes on $1.3 million he was paid as part of a secret arrangement with a purported donor to the charity where he worked.
Robinson was CEO of a charity that collected and distributed medical supplies overseas. He entered a secret arrangement with a purported donor, Gurcharan "Jazzy" Singh, who provided medical supplies to the charity, making it appear as if these supplies had been donated. Robinson then arranged for the charity to sell the goods to a third party, passing most of the sale proceeds back to Singh. As compensation, Singh paid Robinson up to 10% of the proceeds. From 2013 through 2019, Robinson received $1.3 million from this scheme.
Robinson did not report this income on his federal returns or pay tax on it. Instead, he used the funds to pay off the mortgage on his principal residence and to buy multiple luxury vehicles.
He caused a tax loss to the IRS of $485,982.
Robinson was also ordered to pay $485,982 in restitution to the U.S. Singh was separately prosecuted in California and sentenced to a year and a day in prison.
Columbia, Missouri: A U.S. district court has permanently barred Aric Elliot Schreiner and his company, Columbia CPA Group LLC, from organizing, promoting, selling or marketing tax schemes involving the use of charitable remainder annuity trusts.
In February 2022, the U.S. sued Schreiner, Columbia CPA Group and five other defendants to stop them from promoting the scheme. The court previously entered permanent injunctions against the other five defendants; Schreiner and Columbia CPA Group allegedly promoted the scheme in concert with other defendants.
The government alleges that Schreiner falsely claimed to customers that they could avoid reporting to the IRS and paying federal income tax on the sale of property by transferring it to a CRAT, unlawfully inflating (stepping-up) the cost basis in the property on tax documents, selling the property and using the money to buy an annuity, and by receiving payments from the annuity but failing to report the payments as income on tax forms. Schreiner also prepared tax forms to implement the scheme.
Schreiner and Columbia CPA Group also agreed to be barred from organizing, promoting, marking or selling other tax schemes including conservation easements and monetized installment sales.
The court ordered Schreiner to disgorge gains from the scheme totaling $400,000. Schreiner and Columbia CPA Group agreed to the court orders.
