Los Angeles Tax Professionals Arrested for Illegal Tax Schemes Costing State $7.6 Million
A Cerritos CPA and Los Angeles attorney were arrested on felony charges of conspiracy and tax evasion.
Victor George Kawana, 53, and Blair Stover, 51, each own one-third of Kruse Mennillo, LLP. According to our special agents, Kawana and Stover allegedly promoted an abusive tax avoidance transaction (ATAT) to more than 100 clients during the years 2002-2005. The fraudulent activity cost the state more than $7.6 million in tax liability.
They each face three felony counts of aiding in the preparation of false state income tax returns and one felony count of conspiracy. Each tax count carries a maximum sentence of three years in state prison.
They instructed their clients to utilize an ATAT involving the creation of Nevada corporations and Roth IRA or Employee Stock Option Plans (ESOP) as the sole shareholders. The ATAT was formed with a series of related transactions with no valid business purpose other than tax evasion.
Kawana and Stover were recently arrested and both pleaded not guilty at their arraignments.
Los Angeles County Deputy District Attorney (Major Fraud Division), Lana Kim is prosecuting the case.
Legislation enacted in 2003 and 2011 provided us with more enforcement tools to crack down on abusive tax shelters, such as increasing the time period to conduct audits, greater registration requirements, and increased penalties for both investing in and promoting illegal tax shelters.
Our audit program identified and referred this case to the department’s criminal investigation program. We continue to attack the use of abusive tax shelters, which costs California hundreds of millions in lost revenue.