Monday, May 20, 2024

Tax Preparer Pleads to Filing False Tax Returns as Part of a Nationwide Abusive-Trust Tax Shelter 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.

Now according to the DoJ, an Arizona man pleaded guilty on May 17, 2024 to two counts of assisting in the preparation of false tax returns for individuals who used an abusive-trust tax shelter to underreport their income and tax liabilities.

According to court documents and statements made in court, from 2017 to 2023, Kent Ellsworth operated Ellsworth Stauffer P.C., a return preparation business. During that time, Ellsworth participated in a scheme to defraud the IRS that involved the promotion, sale and implementation of a fraudulent tax shelter. Ellsworth participated by preparing and filing over 500 false tax returns for approximately 60 clients nationwide who used the tax shelter to conceal income from the IRS and not pay tax. Ellsworth intentionally caused more than $60 million in income to be fraudulently sheltered from the IRS, which resulted in a tax loss to the IRS of approximately $17 million.

Ellsworth Prepared The False Tax Returns To Further The Abusive-Trust Tax 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 of their income to sham trusts and a so-called “private family foundation” to create the illusion that the income was not theirs. However, the sham trusts and foundations were nothing more than bank accounts designed to hold funds the clients earned and continued to control. 

To carry out the scheme, Ellsworth was taught how to prepare tax returns utilizing the scheme’s fraudulent 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 living expenses. Ellsworth was paid fees for preparing the returns by the clients participating in the tax shelter.

Ellsworth is scheduled to be sentenced on Aug. 14. He faces a maximum penalty of three (3) years in prison for each count of preparing and filing false tax returns. Ellsworth also faces a maximum fine of $250,000, a period of supervised release and the costs of prosecution for each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Have An Abusive Trust?

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

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