NC Agent, Missouri Lawyers Convicted in $4M Tax Shelter, Insurance Scheme

A federal jury on Thursday found a North Carolina insurance agent and two Missouri lawyers guilty on all counts in a $4 million tax evasion scheme that also defrauded an insurance carrier.

The jury in Charlotte, said licensed agent and broker David Shane Simmons, of Jefferson, North Carolina, ran an elaborate scheme for several years, beginning in 2011. Simmons worked with St. Louis attorneys Michael E. Kohn and Catherine Elizabeth Chollet, providing false information on insurance policy applications.

The carrier, not named in court documents, provided more than $200 million in life insurance coverage, and Simmons split the commission with Kohn and Chollet, prosecutors said.

Simmons, who argued in court that he had only followed the advice of the lawyers, also filed false tax returns, underreporting his business income and inflating his expenses, the U.S. Department of Justice has said. The trio also promoted and sold what was known as the Gain Elimination Plan, a tax shelter designed to conceal income by overstating business expenses and fees.

Those fictitious fees were paid, on paper, to a limited partnership largely owned by a charity, prosecutors said in a statement Thursday. “In reality, Kohn and Chollet fabricated the fees.”

“The defendants’ use of tax schemes was clearly intended to conceal income from the IRS,” said Donald Eakins, the special agent in charge for the Internal Revenue Service.

Kohn and Chollet told their clients that the plan was required to obtain life insurance on the clients to cover the income that was allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.

Simmons earned more than $2.3 million in commissions from selling the policies, which he split with Kohn and Chollet.

A sentencing date has not been set. The conspirators could face as much as five years in prison for the conspiracy charge conviction and three years on aiding false tax returns. Altogether, the jury found the three guilty of 22 counts.

Investigators had obtained evidence when federal agents posed as affluent clients and met with Simmons and the attorneys.

“In order to give it economic substance, we have to be willing to replace the charity’s capital account no later than the year after the partnership is liquidated,” Kohn told an undercover agent, the indictment shows. “So, we have to buy life insurance so that if he dies there will be sufficient cash to retire the charity’s capital account.”

Simmons’ Jefferson Insurance Group website shows that he spent almost a decade in the banking industry before he became an insurance agent in 2006. The agency, near Asheville, offers health, life and benefits products.