Tax Attorneys, Insurance Agent Sentenced for $4M Tax Shelter Scheme

Millions in Tax Losses as Trio Convicted in Charlotte Federal Court

In a scathing indictment of the depths of tax evasion, a federal jury in Charlotte, North Carolina, 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.

According to court documents and evidence presented at trial, Michael Elliott Kohn, 55, and Catherine Elizabeth Chollet, 51, both attorneys and residents of St. Louis, Missouri, and David Shane Simmons, 54, 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.

The verdict sends a clear message that tax fraud will not be tolerated, said U.S. Attorney Dena J. King. “Tax fraud is not just a crime against the government,” she said. “It’s a betrayal of trust to every honest taxpayer.”

IRS Special Agent in Charge Donald “Trey” Eakins praised the work of the IRS Criminal Investigation team, saying, “The defendants’ use of tax schemes was clearly intended to conceal income from the IRS. 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.”

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. IRS Criminal Investigation is investigating the case.