Two individuals, Timothy McPhee from Estes Park, Colorado, and Larry Conner from Frisco, Texas, have been indicted by a federal grand jury in Denver on Tuesday. The U.S. Department of Justice accuses them of conspiring to defraud the United States and aiding in the preparation of false income tax returns. McPhee and his spouse, Marcia Predmore, are also charged with evading their personal federal income taxes.
Since 2017, McPhee and Conner have allegedly been promoting and selling abusive trust tax shelters to clients across the country for fees between $25,000 and $50,000. The scheme involved directing clients, primarily business owners, to assign their legitimate business income to a series of sham trusts. This method created an illusion that the income was no longer under the client's control. The third sham trust would then "donate" any remaining income to a private family foundation which then "loaned" the funds back to the client’s business or business trust without any tax implications.
The duo reportedly reassured clients that their business operations would remain unchanged and they would retain complete control over their businesses and income generated by them. Clients were instructed to pay for personal expenses with funds held in bank accounts for the sham trusts.
Additionally, McPhee and Conner are accused of instructing clients to transfer assets like real estate and vehicles to the trusts. This strategy helped clients evade income taxes on capital gains from the sale of these assets while maintaining full control over their use and enjoyment.
Unindicted co-conspirators and return preparers were also mentioned in the indictment as participants in the scheme. However, court documents do not suggest that clients were aware that the arrangement was illegal. The accused assured many individuals that this was a legal method for reducing taxes.
Earlier this year, an undercover agent posing as a potential client had a video meeting with McPhee, during which McPhee allegedly claimed he knew of a trust structure that could reduce tax liability by about 95% to 98%.
McPhee and Predmore are also charged with using the same scheme to hide a significant amount of their own income from the IRS. The indictment alleges that they assigned nearly all their income to these sham trusts and transferred multiple real estate properties to one of these trusts before selling them. The couple then reportedly filed false individual income tax returns with the IRS.
If found guilty, McPhee and Conner could face up to five years in prison for conspiring to defraud the United States and three years in prison for each count of aiding in the preparation of false tax returns. McPhee and Predmore could also face a maximum penalty of five years in prison for each count of tax evasion.
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