An Arizona resident, Kent Ellsworth, admitted guilt on Friday to two charges of aiding in the creation of false tax returns for individuals who employed an abusive-trust tax shelter to understate their income and tax liabilities.
Court documents and statements made in court reveal that from 2017 to 2023, Ellsworth ran Ellsworth Stauffer P.C., a return preparation business. During this period, he was involved in a scheme to defraud the IRS through the promotion, sale, and implementation of a fraudulent tax shelter. Ellsworth's role included preparing and filing over 500 false tax returns for about 60 clients nationwide who used the tax shelter to hide income from the IRS and evade taxes. Ellsworth intentionally enabled more than $60 million in income to be fraudulently hidden from the IRS, resulting in a tax loss of approximately $17 million.
Ellsworth prepared these false tax returns to advance the abusive-trust tax shelter scheme executed by others. Clients who bought into this tax shelter—predominantly successful business owners—were instructed to assign or "donate" nearly all their income to sham trusts and a so-called "private family foundation" in order to create the illusion that they did not own this income. However, these sham trusts and foundations were merely bank accounts set up to hold funds that clients earned and continued to control.
To execute this scheme, Ellsworth was trained on how to prepare tax returns using the fraudulent methods of the scheme. He was directed to report all income assigned to a sham trust as income of the trust itself and offset that income by deducting all expenses paid for by the trust, including clients' personal living expenses. For his services in preparing these returns, Ellsworth received fees from clients participating in the tax shelter.
Ellsworth is due for sentencing on August 14th. He faces a maximum penalty of three years imprisonment per count for preparing and filing false tax returns. Additionally, Ellsworth could face a maximum fine of $250,000, a period of supervised release, and the costs of prosecution for each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The announcement was made by Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Special Agent in Charge Andy Tsui of IRS Criminal Investigation’s (IRS-CI) Denver Field Office.
The case is currently under investigation by IRS-CI. Trial Attorneys Amanda R. Scott and Lauren K. Pope, along with Senior Litigation Counsel Corey J. Smith of the Tax Division, are prosecuting the case.