Tax Attorneys And Insurance Agent Convicted In Tax Shelter Scheme

STATESVILLE, N.C. - A federal jury in Charlotte has found two tax attorneys and an insurance agent guilty of conspiring to defraud the United States and helping clients file false tax returns based on their promotion and operation of a fraudulent tax shelter, said Dena J. King, U.S. Attorney for the Western District of North Carolina.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department's Tax Division and Donald "Trey" Eakins, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation, Charlotte Field Office (IRS CI), join U.S. Attorney Dena J. King of the Western District of North Carolina made the announcement.

"Tax fraud is not just a crime against the government," said U.S. Attorney King. "It's a betrayal of trust to every honest taxpayer. Today's guilty verdict sends a clear message that we will not tolerate tax fraudsters who promote and operate fraudulent tax schemes. Their conduct compromises the integrity of our tax system and burdens the rest of us with the weight of their deceit."

"The defendants' use of tax schemes was clearly intended to conceal income from the IRS," said Special Agent in Charge Eakins. "Today's verdict reinforces our commitment to every American taxpayer that IRS CI special agents will continue to identify and help bring to prosecution those who promote illegal schemes designed to evade the payment of taxes."

According to court documents and evidence presented at trial, from 2011 to November 2022, Michael Elliott Kohn and Catherine Elizabeth Chollet, both attorneys and residents of St. Louis, Missouri, and David Shane Simmons, a licensed insurance agent and broker based out of Jefferson, North Carolina, promoted, marketed, and sold to clients a fraudulent tax scheme known as the Gain Elimination Plan.

The defendants 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. In reality, Kohn and Chollet 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 that was allocated to the charitable organization. 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 tax 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 of more than $4 million.

A sentencing date has not been set. They face a maximum penalty of five years in prison for the conspiracy charge and a maximum penalty of three years in prison for each charge of aiding and assisting in the preparation of false tax returns. Simmons also faces a maximum sentence of three years in prison for each count of filing false personal tax returns. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

IRS Criminal Investigation is investigating the case.

Assistant U.S. Attorney Caryn Finley of the U.S. Attorney's Office in Charlotte and Trial Attorneys Kevin Schneider and Todd Ellinwood of the Tax Division are prosecuting the case.