In a recent federal court ruling, two tax attorneys and an insurance agent were convicted of orchestrating a complex tax shelter scheme, defrauding the United States of millions. The defendants, Michael Elliott Kohn and Catherine Elizabeth Chollet, both hailing from St. Louis, Missouri, and David Shane Simmons from Jefferson, North Carolina, crafted what they called the “Gain Elimination Plan.” The case tried in Charlotte, North Carolina, brought to light a sophisticated web of deceit spun by the defendants, resulting in fabricated expenses and false insurance policies. This scheme aimed to shield clients’ income from the prying eyes of the Internal Revenue Service (IRS) by inflating business expenses through fictitious royalties and management fees.
Background:
From 2011 to November 2022, Kohn, Chollet, and David Shane Simmons operated their scheme, marketing it to clients across various industries. Their pitch promised a legal means to minimize tax liabilities by creatively allocating income and expenses within a complex framework. The plan involved setting up a limited partnership purportedly owned by a charitable organization, which would receive inflated payments for fictitious services.
The Scheme:
At the heart of the scheme lay the creation of fictitious fees and expenses, meticulously crafted to appear legitimate on paper. Kohn and Chollet advised clients that these fees, paid to the limited partnership, were necessary to minimize tax exposure by diverting income into deductible expenses. They further elaborated that the limited partnership required insurance coverage on clients’ lives to protect the income allocated to the charitable organization.
Role of David Shane Simmons:
David Shane Simmons, leveraging his position as a licensed insurance agent, played a pivotal role in executing the scheme. He marketed and sold insurance policies tailored to fit the fraudulent framework devised by Kohn and Chollet. These policies, purportedly aimed at ensuring the income allocated to the charitable entity, served as a crucial component of the plan’s legitimacy façade.
David Shane Simmons’s involvement extended beyond insurance sales. He actively participated in the financial arrangements, receiving substantial commissions exceeding $2.3 million from policy sales. These commissions were shared among the defendants, further cementing their partnership in financial fraud.
Moreover, David Shane Simmons personally engaged in tax evasion by filing false personal tax returns. He significantly understated his income and inflated business expenses, contributing to an additional tax loss exceeding $480,000.
Consequences:
The ramifications of the scheme were severe, resulting in a significant tax loss exceeding $4 million for the IRS. The fabricated expenses and false insurance policies not only defrauded the government but also undermined the integrity of the tax system, eroding public trust in fair taxation.
Verdict and Sentencing:
Following a federal trial, the defendants were found guilty of conspiracy to defraud the United States and aiding and assisting in the preparation of false tax returns. The severity of their offenses carries potential penalties of up to five years for conspiracy charges and three years for each count of aiding and assisting in the preparation of false tax returns. Simmons faces additional penalties for filing false personal tax returns.
Official Announcement and Prosecution:
The verdict was announced by Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Dena J. King for the Western District of North Carolina. Leading the successful prosecution were Trial Attorneys Kevin Schneider and Todd Ellinwood from the Tax Division, with the assistance of Assistant U.S. Attorney Caryn Finley for the Western District of North Carolina.
Investigation:
IRS Criminal Investigation spearheaded the exhaustive investigation, leveraging legal expertise to unravel the intricate layers of financial deception orchestrated by the defendants. The collaboration between law enforcement agencies underscores the government’s commitment to combating financial fraud and protecting the integrity of the tax system.
The conviction of these tax attorneys and an insurance agent David Shane Simmons underscores the gravity of attempting to defraud the IRS. Their fraudulent scheme not only resulted in significant financial losses but also eroded public trust in the fairness of the tax system. As legal proceedings continue, the case serves as a stark reminder that those engaging in financial misconduct will face justice, safeguarding the interests of honest taxpayers and upholding the integrity of the nation’s tax system.
