Two Promoters Charged in Alleged Nationwide Illegal Abusive-Trust Tax Shelter Fraud Scheme

A federal grand jury in Denver returned an indictment, unsealed today, charging a Colorado man and a Texas man with conspiring to defraud the United States and with assisting in the preparation of false income tax returns. The indictment also charges the Colorado man and his spouse with evading their personal federal income taxes.

According to the indictment, since 2017, Timothy McPhee of Estes Park, Colorado, and Larry Conner of Frisco, Texas – along with others – promoted and sold an abusive-trust tax shelter to clients nationwide for fees ranging from approximately $25,000 to $50,000. The indictment alleges that McPhee and Conner instructed clients to assign their income to a series of sham trusts to make it appear as if the income was no longer owned or controlled by the client. However, this paper trail was allegedly false as the clients continued to benefit from and control the income assigned to the sham trusts. McPhee and Conner’s promotion and sale of the tax shelter allegedly resulted in tens of millions of dollars in federal income taxes not being paid to the IRS.

McPhee and Conner allegedly assured clients that after transferring income or personal property to the sham trusts, the clients would retain full control over the assets and could continue to use them for their benefit. To facilitate such use, McPhee and Conner allegedly directed their clients to open bank accounts and obtain credit cards in the names of their sham trusts and to pay personal expenses with funds held in those accounts. McPhee and Conner also allegedly directed their clients to transfer real estate and other assets to the sham trusts to avoid paying income taxes on any capital gains incurred from the sale of those assets.

McPhee and his wife, Marcia Predmore, are charged with using the abusive-trust tax shelter to conceal a substantial amount of their own income from the IRS. McPhee and Predmore allegedly signed trust instruments purporting to create four trusts, opened bank accounts in the name of each entity and paid for personal living expenses from those bank accounts. The indictment alleges that McPhee and Predmore assigned nearly all their income to their sham trusts and transferred multiple real estate properties to one of their sham trusts before selling the property. McPhee and Predmore then allegedly filed false individual income tax returns with the IRS that failed to report the income they assigned to the sham trusts.

If convicted, McPhee and Conner face a maximum penalty of five years in prison for conspiring to defraud the United States and three years in prison for each count of aiding and assisting in the preparation of false tax returns. McPhee and Predmore also face a maximum penalty of five years in prison for each count of tax evasion. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division made the announcement.

IRS Criminal Investigation is investigating the case.

Senior Litigation Counsel Corey J. Smith and Trial Attorneys Lauren K. Pope and Amanda R. Scott of the Tax Division are prosecuting the case.

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.