Indianapolis CPA Sentenced for Participation in Illegal Tax Shelter

An Indiana CPA was sentenced yesterday to three years in prison for assisting in the preparation of false tax returns on behalf of clients who participated in an illegal tax shelter.

The following is according to court documents and statements made in court: between 2013 and 2022, Jason L. Crace prepared income tax returns for clients that claimed millions of dollars in false deductions for so-called “royalty payments.”  However, as Crace knew, these “royalty payments” were merely circular flows of money designed to give the appearance of genuine business expenses. Typically, a client would send money to bank accounts controlled by scheme promoters who then sent the money — minus a fee — back to a different bank account controlled by the client. In this way, tax shelter participants retained control of the money they transferred, while falsely deducting the transfers as business expenses on their tax returns. One of the scheme’s promoters, Stephen T. Mellinger III, previously pleaded guilty and was sentenced to eight years in prison for his role promoting the scheme.

In total, Crace’s preparation of false tax returns claiming fraudulent “royalty” deductions caused a loss to the IRS of more than $2.5 million.

In addition to his prison sentence, the court sentenced Crace to serve one year of supervised release and to pay restitution of $2,532,936.

Acting Deputy Assistant Attorney General Karen E. Kelly of the Justice Department’s Tax Division and Acting U.S. Attorney Patrick Lemon for the Southern District of Mississippi made the announcement.

IRS Criminal Investigation is investigating the case.

Trial Attorneys Richard J. Hagerman, William M. Montague, and Matthew C. Hicks of the Justice Department’s Tax Division and Assistant U.S. Attorney Charles W. Kirkham for the Southern District of Mississippi are prosecuting the case.