Bad apples; sham on you; yet another emergency; and other highlights of recent tax cases.
Washington, D.C.: Recent IRS Office of Professional Responsibility disciplinary sanctions include censure, suspension or disbarment from practice before the IRS. Individuals disciplined include:
- Cullman, Alabama: CPA Barry S. Thompson, indefinite from Jan. 29, 2024;
- Desert Hot Springs, California: CPA Sean M. Gerold, indefinite from Jan. 30, 2024;
- Georgia and Boca Raton, Florida: Attorney/CPA Randall A. Lenz, indefinite from Jan. 9, 2024;
- Boston: Attorney Benjamin B. Tiriri, indefinite from Feb. 13, 2024;
- Moncure, North Carolina: Attorney Kathie L. Russell, indefinite from Feb. 5, 2024;
- Lebanon, Ohio: CPA Edwin P. Strickling, indefinite from Jan. 23, 2024;
- Warminster, Pennsylvania: Attorney/CPA Alan B. Kane, indefinite from Dec. 11, 2023.
Beverly Hills, California: Business owner Haim Jerry Kohen has pleaded guilty to evading more than $1 million in federal and state taxes.
He owned and operated a business that bought and sold bulk quantities of used clothing. He spent more than a decade underreporting or not reporting income on his returns and tried to hide this income from the IRS by diverting it from his business to himself and by dealing in cash.
For example, Kohen underreported his business income by diverting cash payments received from a significant customer. Kohen kept the cash for himself instead of depositing it into his business bank account and did not report the diverted cash on the business returns or on his personal returns.
In November 2013, that same customer owed Kohen's business more than $648,000. Kohen and the customer executed a promissory note where the customer agreed to repay the debt to Kohen personally and not to the business. Kohen received payments in cash and did not report them on any return. Over the years, Kohen also lent money and did not report on his personal returns the interest received.
Kohen also did not report rental income from two properties he owned in Beverly Hills and Tarzana, California. He bought the Beverly Hills property in 2011 and soon deeded it to close family members. He continued to collect the rental income for the property and exercised ownership and control over it.
He caused a total tax loss to the IRS and the State of California of at least $1,196,802.
Sentencing is Oct. 1. He faces up to five years in prison as well as a period of supervised release, restitution and monetary penalties.
Canton, Ohio: Steven Saris, 49, has pleaded guilty to tax evasion, to operating an illegal gambling business and to two counts of money laundering.
From 2009 through 2022, Saris owned and operated multiple illegal gambling businesses in Ohio and Florida. Saris concealed his involvement in these businesses by arranging for others to serve as nominee owners.
For 2015, he filed a return that did not report more than $1.4 million in income from his gambling businesses. For 2016 through 2021, Saris did not file returns or pay all the tax that he owed despite earning more than $8.5 million from his gambling businesses. Saris made only two nominal payments in 2018 when he filed an application for an extension to file his 2017 return.
He used the money from the illegal businesses to gamble millions at legal casinos and to acquire and renovate at least two residential properties.
His conduct caused a tax loss to the IRS of $2,823,391.
Following the 2018 execution of search warrants at multiple illegal gambling businesses and associated locations, Saris approached law enforcement officers about cooperating in the investigation and made false statements to them. At the same time, he continued operating the illegal gambling businesses in Ohio and did not disclose these operations to law enforcement.
In August 2022, law enforcement searched Saris' residence and executed a search for his cell phone. Told of the search warrant for his phone, Saris told law enforcement that he did not know the location of the phone, which police found in a water tank of a toilet in Saris' residence.
Sentencing is Aug. 8. He faces a maximum of 10 years in prison for the counts of money laundering and five years for both tax evasion and for operating an illegal gambling business. Saris also faces a period of supervised release, restitution and monetary penalties.
Mesa, Arizona: Tax preparer Kent Ellsworth has pleaded guilty to two counts of assisting in the preparation of false returns for individuals who used an abusive-trust tax shelter to underreport their income and tax liabilities.
From 2017 to 2023, Ellsworth operated Ellsworth Stauffer PC, a tax prep business. During that time, he participated in a scheme that involved the promotion, sale and implementation of a fraudulent tax shelter. He prepared and filed more than 500 false returns for some 60 clients nationwide who used the tax shelter to conceal income from the IRS and not pay tax. He caused more than $60 million in income to be fraudulently sheltered from the IRS, resulting in a federal tax loss of some $17 million.
Ellsworth prepared the false returns to further the shelter scheme carried out by others. Clients who purchased the tax shelter — most of whom were successful business owners — were directed to assign or "donate" nearly all their income to sham trusts and a "private family foundation" to make it appear that the income was not theirs. The sham trusts and foundations were just bank accounts designed to hold funds the clients earned and continued to control.
Ellsworth was taught how to prepare returns using the scheme's methods. He was instructed to report all income assigned to a sham trust as income of the trust and to offset that income by deducting all expenses paid for by the trust, including the clients' personal expenses. Ellsworth was paid fees for preparing the returns by the participating clients.
Sentencing is Aug. 14. He faces up to three years in prison for each count of preparing and filing false returns, as well as a fine of up to $250,000, a period of supervised release and the costs of prosecution for each count.
Pineville, West Virginia: Christopher Jason Smyth has been convicted for failing to pay taxes withheld from employees' wages at an ambulance service he operated, and for obstructing the IRS.
From 2012 through part of 2017, Smyth operated Stat EMS LLC, an ambulance service he created after a previous ambulance business he operated accrued millions in employment tax liabilities and filed for bankruptcy. Smyth caused Stat EMS to be founded in the name of a nominee owner but continued operating the business.
At Stat EMS, Smyth was responsible for withholding taxes from employees' wages and paying them to the IRS; for two quarters in 2016, he did not fully pay the taxes to the IRS. Instead, he paid various personal expenses and transferred funds to businesses held by his friends and family.
The IRS determined that Stat EMS accrued approximately $3.3 million in unpaid taxes. Eventually, the agency assessed the unpaid taxes against Smyth personally and attempted to collect. Smyth stated that he had no personal bank accounts and denied that he used anyone else's. In reality, he regularly deposited his paychecks into an account in a relative's name. He also attempted to misrepresent that he had nothing to do with several other businesses.
He was found guilty of two counts of failing to pay over taxes for two quarters in 2016 and one count of obstructing the IRS related to its efforts to collect the unpaid taxes. He was found not guilty on the failure to pay over taxes related to two quarters in 2017.
Sentencing is Sept. 4, when he will face up to five years in prison for each failure to pay count and three years for obstructing the IRS.
Inwood, West Virginia: The owners of three local businesses have admitted to failing to pay $300,000 in income taxes.
Mark L. Peters and Aimee Michelle Peters, the owners and operators of Pizza Oven, Dragonfly Health and Allied Light and Sound, pleaded guilty to conspiracy to obstruct or impede the IRS. Mark and Aimee Peters failed to declare nearly $1.3 million in income to the IRS for four years.
They face up to five years in prison. They have agreed to pay $672.286.59, which includes the tax loss, penalties and interest.
