The Facts

In June 2026, the United States Court of Appeals for the Fourth Circuit upheld the convictions of Michael Kohn, Catherine Chollet, and David Simmons for a decade-long tax fraud operation. The defendants designed and marketed the “Gain Elimination Plan” (GEP), a scheme that allowed wealthy clients to reduce taxable income through fabricated deductions for business expenses paid to limited partnerships that never existed.

• Duration: The Gain Elimination Plan was marketed and implemented for over 11 years.
• Total Tax Loss: Clients illegally avoided paying more than $22 million in aggregate income taxes.
• Restitution Ordered: The district court ordered defendants to pay the United States over $22.5 million in restitution.
• Insurance Commissions: Simmons received approximately 90% of first-year premiums, sharing about $1.1 million with Kohn and Chollet.
• Sentences: Kohn received 84 months, Simmons 60 months, and Chollet 48 months in prison plus three years supervised release.

The Non-Financial Ledger

This case represents a fundamental betrayal of the public trust by licensed professionals sworn to uphold the law. Tax attorneys and an insurance broker weaponized their expertise to teach wealthy clients how to lie to the IRS for over a decade.

The scheme required fabricating entire business entities that never existed, forging partnership agreements that were never signed, and coaching clients on how to lie to insurance companies about their applications. Simmons provided false personal and financial information about clients to insurers, then coached them on how to answer questions about their own applications.

Chollet used the same fraudulent plan on her own returns, reducing her taxable income by $350,000 over five years. The architects of the scheme became its primary beneficiaries, proving this was a deliberate assault on the tax system by those who understood it best.

Legal Receipts

“As the government proved at trial, however, the charitable organizations never agreed to become a partner in the limited partnerships. Indeed, no partnership agreements were ever signed by the clients and the charitable organization, and thus no limited partnerships existed.”

• This admission proves the core business structure was entirely fictional from inception.
• No legal entity existed to justify the deductions claimed on client tax returns.
• The defendants knew the partnerships were nonexistent when they filed returns claiming the deductions.

“Despite the absence of any economic transactions, the defendants assisted the clients in claiming an arbitrary amount of business expense deductions that were false and not based on any payments made.”

• Deductions were arbitrary numbers with no underlying economic reality supporting them.
• The defendants actively helped clients claim false expenses with no corresponding transactions.
• The scheme relied entirely on fabricated business activity rather than legitimate tax planning.

“Simmons provided false personal and financial information about the clients to the insurance companies, and he and Kohn then coached the clients on how to answer questions about their applications.”

• Fraud extended beyond tax returns into insurance applications filed with regulated companies.
• Defendants actively coached clients to lie during the underwriting process.
• Multiple layers of deception were built into the scheme’s execution across industries.

“In short, an accurate calculation does not render the total true when the components themselves are false.”

• The court rejected the “literal truth” defense when the underlying inputs are fabricated.
• Mathematical accuracy cannot cure fraudulent underlying data.
• The defendants’ clever argument failed because the foundation of every deduction was dishonest.

Public Deception

The defendants presented a complex financial product as legitimate tax planning while knowing every component was fabricated.

• Claimed: Limited partnerships provided intellectual property and management services to clients. Reality: Partnerships never existed and provided no services whatsoever.
• Claimed: Charitable organizations owned majority interests in client partnerships. Reality: Charities never agreed to participate and no partnership agreements were signed.
• Claimed: Business expense deductions reflected actual payments for services rendered. Reality: Deductions were arbitrary amounts with no corresponding payments or transactions.
• Claimed: The GEP was a legitimate tax planning strategy for wealthy clients. Reality: The government proved the plans lacked economic substance and were fraudulent.

Profit-Maximization at All Costs

The defendants consciously accepted harm to the government and taxpayers in exchange for substantial personal financial gain over an 11-year period.

• Kohn and Chollet shared approximately $1.1 million in insurance commissions derived from the fraudulent scheme.
• Simmons received commissions representing about 90% of the first year’s premium on each life insurance policy sold through the GEP.
• Chollet personally reduced her own taxable income by $350,000 using the same fraudulent plan she sold to others.
• Kohn and Chollet also prepared Simmons’ tax returns, underreporting his income and causing an additional IRS loss of over $480,000.

Societal Impact Mapping

Public Health

The prolonged nature of this fraud diverted federal resources away from legitimate enforcement, weakening the overall integrity of the tax system.

• The IRS lost over $22 million in legitimate revenue, reducing funding available for public services including healthcare programs.
• Wealthy clients who participated avoided their fair share, shifting the tax burden onto working families who cannot afford sophisticated avoidance schemes.
• The 11-year duration of the scheme means an entire generation of clients normalised tax evasion through professional intermediaries.

Economic Inequality

This scheme was designed exclusively for wealthy clients who could afford the insurance premiums and partnership setup costs.

• The GEP was marketed specifically to “well-to-do clients,” creating a two-tier system where the wealthy evade taxes while working families pay full rates.
• Over $22 million in evaded taxes represents funding stripped from public schools, infrastructure, and social services that benefit lower-income communities.
• The defendants themselves enriched their personal wealth through $1.1 million in commissions while Chollet sheltered $350,000 of her own income.

Who Pays? Following the Cost

The financial burden of this fraud shifted directly from the wealthy defendants and their clients to ordinary taxpayers.

• Origin: The U.S. Treasury lost over $22 million in legitimate tax revenue from wealthy clients who used the fraudulent scheme.
• Absorbed by: Ordinary taxpayers must cover the shortfall through higher effective rates or reduced public services.
• Additional cost: Simmons’ own underreported income caused a separate IRS loss of over $480,000, compounding the public damage.
• Enforcement cost: Federal resources spent on a two-week trial, appellate proceedings, and ongoing investigation represent additional public expense.

The Settlement Isn’t Justice

The restitution ordered by the district court recovers the stolen revenue but fails to address the full scope of harm or deter future conduct by credentialed professionals.

• The $22.5 million in restitution covers the tax loss plus interest but does not account for the $1.1 million in commissions the defendants personally extracted from the scheme.
• Sentences of 48 to 84 months for an 11-year conspiracy mean the defendants served roughly one month per year of active fraud.
• No evidence in the source material indicates that the clients who participated in the scheme faced equivalent prosecution or penalties.
• The convictions were affirmed on appeal only after the defendants exhausted multiple procedural challenges, consuming additional judicial resources.

This Is the System Working as Intended

The scale and duration of this fraud demonstrates how credentialed professionals can exploit structural gaps in tax enforcement for over a decade before accountability arrives.

• The scheme operated for 11 years before prosecution, allowing over $22 million in taxes to go unpaid while the defendants continued marketing the GEP to new clients.
• The defendants used their professional credentials as tax attorneys and an insurance broker to lend legitimacy to a scheme with zero economic substance.
• Kohn had a prior conviction for obstructing the IRS, yet continued practicing law and marketing tax schemes to clients who trusted his credentials.
• The “literal truth” defense, which argued that accurate arithmetic on fraudulent inputs should be legal, demonstrates how technical legal arguments attempt to obscure fundamental dishonesty.

What a Legitimate Fix Looks Like

This case exposes how credentialed professionals can operate fraudulent tax schemes for over a decade before detection, exploiting gaps between regulatory authority and enforcement capacity.

Regulatory Track

• The IRS should implement mandatory economic-substance reviews for any tax strategy involving charitable partnerships paired with life insurance products.
• State bar associations must coordinate with federal prosecutors to suspend or disbar attorneys under investigation for facilitating tax fraud before conviction.
• Insurance regulators should audit commission-sharing arrangements between brokers and attorneys that create incentives for unnecessary policy purchases.

Legislative Track

• Congress should require real-time disclosure of any tax planning strategy marketed to multiple clients that claims deductions exceeding a defined threshold.
• Legislation should mandate that limited partnerships claiming business expense deductions provide verified proof of services rendered and payments made.
• Penalties for attorneys who facilitate tax fraud should include permanent disbarment and forfeiture of all professional licensing, not just criminal sentencing.

Corporate Governance Track

• Law firms marketing tax strategies should be required to obtain independent third-party opinions on economic substance before offering plans to clients.
• Professional liability insurers should deny coverage for any tax strategy that lacks documented economic transactions underlying claimed deductions.
• State bar ethics committees should issue binding guidance prohibiting attorneys from participating in schemes where charitable entities are listed as partners without their documented consent.

What Now?

Direct your attention to the institutions responsible for oversight of tax professionals and the agencies tasked with preventing future schemes of this nature.

• Watchlist: IRS Criminal Investigation Division, Department of Justice Tax Division, North Carolina State Bar, Missouri Bar Association.
• Oversight Target: The Inter-National Foundation Corporation, the charitable organization referenced in the GEP scheme, should face scrutiny for its role across multiple fraudulent partnerships.
• Report Fraud: Submit information about suspected tax avoidance schemes to the IRS Whistleblower Office, which offers rewards for actionable tips.
• Organize: Join or support advocacy groups demanding stronger enforcement of tax equity laws and holding credentialed professionals to a higher standard of accountability.
• Mutual Aid: Support community tax clinics that help working families navigate legitimate tax credits, ensuring the system works for those who cannot afford fraudulent schemes.