(Insurance Journal) - Two Missouri tax attorneys and a North Carolina insurance agent have been indicted for helping clients set up fraudulent tax shelters, file false tax returns and to defraud an insurance carrier, federal prosecutors announced Wednesday.
Michael Elliott Kohn and Catherine Elizabeth “Liza” Chollet, attorneys in St. Louis, and licensed insurance agent David Shane Simmons, of Jefferson, North Carolina, ran an elaborate scheme since 2011, a federal grand jury said in its indictment.
Kohn and Simmons defrauded an insurance company by providing false information on policy applications. The carrier issued more than $200 million in coverage, and Simmons split the large commission with his co-conspirators, according to the U.S. Department of Justice. The carrier was not named in the court papers.
Simmons also allegedly filed false tax returns by underreporting his business income and inflating his business expenses, the department said in a statement.
The trio sold affluent clients on what they called the Gain Elimination Plan, a tax shelter that was designed to conceal clients’ income by inflating business expenses, royalties and management fees, the indictment alleges.
“In reality, Kohn and Chollet fabricated the fictitious royalties and management fees out of whole cloth,” which cheated the U.S. Treasury out of tens of millions of dollars in tax revenue, the grand jury said.
Simmons’ attorney on Thursday released a statement saying that Simmons “categorically denies the charges and the allegations of wrongdoing.” It added that the agent “has faithfully served his clients for nearly 15 years” and he looks forward to the opportunity to clear his name.
Simmons’ Jefferson Insurance Group website shows that he spent almost a decade in the banking industry before become an insurance agent in 2006. The agency, near Asheville, offers health, life and benefits products.
The DOJ and the indictment did not explain how authorities got wind of the alleged schemes, but the indictment notes that a federal agent posed as a businessman with clients looking for financial services, and contacted Simmons. At a meeting with the undercover agent, Simmons describe Kohn as “super aggressive,” on tax reduction efforts – willing to “see the jail,” but not go inside it.
He explained that Kohn would typically look at clients’ previous tax returns, find mistakes, and file amended returns seeking refunds.
In 2018, Simmons, Kohn and Chollet met with a second undercover agent who was posing as the owner of multiple nail salons in Texas. Kohn, according to the indictment, explained that he could lower the owner’s tax bill by structuring the business as a limited partnership partially owned by a charity organization.
“In order to give it economic substance, we have to be willing to replace the charity’s capital account no later than the year after the partnership is liquidated,” Kohn told the undercover agent, the indictment shows. “So, we have to buy life insurance so that if he dies there will be sufficient cash to retire the charity’s capital account.”
During the insurance application process, Kohn and Simmons gave false information to the insurance carrier on the purpose of the policy, false financial information about the applicants, and false information about the ultimate beneficiary of the policies, the indictment alleges. On compliance forms, Simmons later stated that he did not share the commissions on the policies.
Kohn and Chollet are listed as tax law attorneys at The Kohn Partnership in Clayton, Missouri, outside of St. Louis.
If convicted of the charges, Chollet could face up to eight years in prison. Kohn and Simmons could see as much as 20 years, the DOJ said. Prosecutors have also asked that the defendants forfeit $3.2 million in assets.