A federal court in Kansas City, Mo, has permanently barred Missouri lawyer A. Blair Stover Jr. from promoting a variety of improper tax schemes.
In entering the civil injunction order against Stover, U.S. District Judge Ortrie D. Smith found that Stover for years promoted schemes in which business owners use sham companies and sham transactions to improperly reduce their reported income tax liabilities.
The court said that "very conservative estimates" of the tax losses to the government from Stover's conduct were around $100 million, and noted that an Internal Revenue Service revenue agent estimated the total tax loss to be $300 million.
The court's decision focused on three schemes, two of which Stover promoted while working in the Kansas City office of Grant Thornton LLP, where he was formerly a senior tax manager and principal. Stover left the firm in 2001, and has been an equity partner in the Kruse Mennillo LLP accounting firm since then.
All three tax arrangements have a common thread, according to the court. They are premised on a business owner forming a separate business denominated as a management company. The operating company the initial, pre-existing business retains the new company to perform management services.
The court cited numerous examples of Stovers customers using sham management companies and sham transactions to reduce their reported tax liabilities. According to the court, the end result of a Stover-designed arrangement used by a St. Joseph, Mo., construction firm was the creation of a series of phantom deductions that allowed [the firm] to avoid reporting $350,000 in income, all by paying for illusory management services to paper entities that had no economic substance.
In another example, the court noted that Stovers arrangements to help a doctor reduce his taxes were nothing more than backdating in order to avoid the effects of a law that prohibited the scheme after a certain date.
In response to one of Stovers asserted defenses in the case, the court said that his reasoning is so specious that he should have known it was wrong. The court later added that Stover has been quite adept at hiding his involvement in schemes he promoted in an effort to develop what he believes is plausible deniability. Ultimately, his denials are implausible.
The court acknowledged the clients left in the defendants wake. Stovers clients were provided with inaccurate information about the risks they were undertaking. All had to pay other professionals to 'undo'" the tax arrangements that Stover promoted. The court noted that Stover describes himself as a rainmaker, and found that practically everything he has done in that capacity has been improper.
The court concluded that the promotion of tax schemes and structures is now defendants modus operandi, and said that it has no reason to believe he would not concoct and promote some other scheme of doubtful validity.
The court ordered that Stover must in the future provide the IRS in advance with detailed plans of any financial or tax arrangement he intends to promote and must further notify the IRS of any business entity that is formed at his direction. He must also notify the IRS of any new clients with whom he consults or who retain him for tax advice.
Last May, a different judge on the same federal court enjoined Stovers former Grant Thornton colleague, Allen Davison, from promoting similar improper tax schemes (see CPA Accused in Chicken Flock Tax Fraud Scheme).
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access