Former Grant Thornton Principal Barred from Promoting Tax Schemes

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 Stover’s 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 Stover’s 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 Stover’s 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 defendant’s wake. Stover’s 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 defendant’s 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 Stover’s former Grant Thornton colleague, Allen Davison, from promoting similar improper tax schemes (see CPA Accused in Chicken Flock Tax Fraud Scheme).