(The Center Square) – A Colorado man and a Texas man are facing charges of federal tax fraud, according to the U.S. Department of Justice.
Timothy McPhee of Estes Park, Colo., and Larry Conner of Frisco, Texas, along with others were named in an indictment from a federal grand jury in Denver. They allegedly promoted and sold abusive-trust tax shelters to clients throughout the nation. They charged fees from approximately $25,000 to $50,000.
Abusive-trust tax evasion schemes often target wealthy individuals, small business owners, doctors, lawyers and other professionals, according to the IRS website. The abusive-trust arrangements promise reduction or elimination of taxes on income, self-employment taxes and other tax deductions and reductions. The schemes attempt to hide ownership of assets and income and disguise transactions.
“The trusts are vertically layered, with each trust distributing income to the next layer,” the IRS website states. “Funds may flow from one trust to another trust by way of rental agreements, fees for services, purchase and sale agreements, and distributions. The goal is to use inflated or nonexistent deductions to reduce taxable income to nominal amounts.”
McPhee and Conner guided clients to assign their income to a series of “sham trusts” to provide the appearance income was no longer owned or controlled by the client, according to a media release from the DOJ.
“However, this paper trail was allegedly false as the clients continued to benefit from and control the income assigned to the sham trusts,” the release stated. “McPhee and Conner’s promotion and sale of the tax shelter allegedly resulted in tens of millions of dollars in federal income taxes not being paid to the IRS.”
McPhee and Conner are alleged to have assured clients they would have full control over their assets and could use them to their benefit once income or personal property was transferred to the sham trusts. The two allegedly instructed clients to open bank accounts and credit cards in the name of the sham trusts and then use the funds from those accounts for personal expenses. The two also allegedly directed the transfer of real estate and other assets to the sham trusts so the clients could avoid paying income taxes on any capital gains from the sale of the assets.
The maximum penalty for conspiring to defraud the United States is five years. McPhee and Conner also could each serve three years in prison for each count of aiding and assisting in preparation of false tax returns, if convicted.
McPhee and his wife, Marcia Predmore, also are charged with using the abusive-trust tax shelter to hide a substantial amount of their income from the IRS. The indictment states they allegedly created four trusts, opened bank accounts in the names of each trust and paid for personal living expenses from the accounts.