A Teaching Moment From The $1 Billion Texas Tax Shelter Indictment

Imaginative image by Grok for illustrative purposes

Craig Fenton was/is a tax manager with the firm of McDonnell Richardson CPA PC. He is currently under indictment. It is pure projection on my part, but I have to say that I feel kind of bad for him, as he seems to be the little fish. The mastermind according to the indictment is Joseph Garza, a Dallas attorney. Also named in the indictment are Kevin McDonnell and James Richardson, the partners of the eponymous firm. This is actually old news. DOJ issues a press release on the indictment of Garza on October 27, 2022. The accountants (McDonnell is also a lawyer) were named in a superseding indictment on November 15, 2022. The website, Simplified Business Solutions lets you toggle between the CPA firm and the law firm, McDonnell Coates LLP, both led by McDonnell.

The motto on both of the sites is “You’re not just a client, you’re a partner”. Well, you may be a partner, but, at least overtly, Craig Fenton is not. In the “Our Team” section of the website, he is down there with nine other employees..

The indictment alleges that that the four of them “engaged in a scheme to defraud the United States through the promotion, use, and facilitation of a fraudulent tax shelter that allowed wealthy individuals (clients) to illegally reduce taxes on substantial amounts of business income.”

According to the indictment, Garza, the mastermind, directed clients to hand-picked CPAs and other tax professionals. There was a circular flow of funds with money going to a shell “Services” company and a shell “Investments company” and back to the client tax-free. There were fake invoices, false business expenses fake business valuation reports and sham contractual agreements. Each client had a service company and an investment company set. There was private annuity agreement, when the client sold their interest in the service company, which they owned, to the investments company, which they also owned. The fee for all the work was a percentage of the predetermined amount of money that clients had chosen to shelter from taxes.

There is a lot of interesting stuff in the indictment, but I am just going to pick out one thing, that is sort of a teaching moment.

“On or about September 5, 2013, Fenton sent an email to D.K.’s office manager and wrote: “We Really Need To Put The To The Type Of expense that is on the invoices because it is a lot of money and it will look more tax deductible if it is split into new expense accounts that match the invoices. It is always best not to send a tax return with a giant expense number in it when it can be broken out into individual accounts.”

Now, I don’t take that email as being damning, but even if Fenton believes that the transactions are legitimate and he is just wanting to massage the appearance of the return and actually make it more accurate, you just shouldn’t put shit like that in emails, which are likely to end up being preserved.

I have to wonder how much Fenton was getting out of this compared to the mastermind and the two partners. If the indictment is accurate, I hope that he flips on them and gets off easy.

The case has been dragging along. I picked up the story from a procedural ruling dated May 1, 2026 that indicated that Fenton is entitled to a “bill of particulars”. Here is the ruling:

“For the reasons discussed above, the Court GRANTS Defendant Craig Fenton’s Motion for Bill of Particulars , and the Government is ORDERED to provide a bill of particulars containing the following information: (1) with respect to Count Nineteen, the names of any and all unindicted co-conspirators; (2) with respect to Count Forty-Seven, the names of any and all unindicted co-conspirators; and (3) whether the individuals identified in the Superseding Indictment by the initials “T.P.,” “A.J.,” “R.F.,” “D.H.,” and “M.C.” are considered unindicted co-conspirators, on or before May 5, 2026.”

Trial had been scheduled at the end of May but it is now stayed as the ruling on one of the motions is being appealed to the Fifth Circuit.

There is a motion not yet ruled on to exclude a variety of evidence about matters not relevant to the tax charges like a long ago conviction on drug charges and boorish office behavior. The motion also seeks a pre-trial ruling that the defendants may introduce evidence that they relied in good faith on civil opinions holding that the alleged tax arrangements were not unlawful.