John Anthony Castro’s greatest claim to fame is probably his run for the 2024 Republican nomination for President.  Using his status as a candidates for standing he filed lawsuits to have Donald Trump removed from the ballot on Fourteenth Amendment Section 3 grounds. Those cases did not go anywhere.  The case that did go somewhere is the United States of America v John Anthony Castro in the United States District Court For the Northern District of Texas in Fort Worth.  The indictment filed January 3, 2024 charged Castro with 33 counts of “Aiding and Assisting in the Preparation and Presentation of a False and Fraudulent Return”.  Castro opted to be tried by the judge rather than a jury.  Judge Terry Means, who was appointed by the elder George Bush, found Castro guilty on all 33 counts.  On October 30, 2024 Judge Means sentenced Castro to 188 months in prison followed by one year of supervised release. A condition of the supervised release is the payment of restitution in the amount of $277,243.

The Tax Practice

I first learned about John Anthony Castro’s tax practice in 2020 when I covered a decision of the Court of Claims in the case of Alan C. Dixon. The refund claim was on a fairly obscure topic, the US tax treatment of the Australian Superannuation Fund for Australian nationals working in the United States.  The refund claim was denied because the amended returns they were based on were not signed by Mr. Dixon.  They were signed by Castro who did not have a power of attorney allowing him to sign returns.  He wrote me that the decision would be appealed and gave me an argument that I didn’t quite comprehend. I see that the Court of Appeals for the Federal Circuit turned down the appeal.

Castro had built a mini practice around the superannuation issue and we might see in it a foreshadowing of what was to come.  Here he is explaining the issue

The key element comes early in the video.  Castro is explaining why his firm’s position is “so starkly different from the rest of the industry”.  As you probably infer, that position is more taxpayer friendly.

Castro’s firm was a “virtual practice” with offices in Orlando FL, Mansfield TX and Washington DC.  The technique he used, as outlined in an interaction with an under cover agent (UC) was to tell the potential client what there refund would be based on their documents if they used another preparer.  He would then offer to do their return his way and split the increased refund. He did this with the UC turning $373 into $6,007 of which his share was $2,999.  He did this by manufacturing $29,339 in deductions.   The deductions did not come from UC. UC did not get to see the return before it was filed.

When the “victim-taxpayers” as the indictment refers to them got wind of the fictitious deduction, Castro stonewalled them.  The indictment lists the type and amount of expenses that are outlined in the indictment for each of the 33 counts.  Each count is a different taxpayer. He seemed to favor employee business expenses, other Schedule A deductions and Schedule C.

Interestingly there are no Australian superannuation counts.

The Defense

In the defense trial brief Castro argued that he had satisfied the “good-faith” “reasonable basis” tax reporting standard on some of the positions that were questions. Then there were the software errors, data entry errors and other preparer errors.

After his conviction he followed up with a letter to Judge Means.  He started out by writing that he vividly recalled a dream that had instructed him to go for a bench trial, because the could trust the judge’s judgement. He then discussed two of the witnesses, who were “client-victims, having skeletons in their closet that were suppressed. He offered some apology – “Although disclosed to the authorities, I failed to explain to clients that were not in  a position to understand and provide informed consent to such a novel and complex legal interpretation”.

The Sentence

I thought the sentence was overly harsh and had trouble reconciling it with the guidelines. When it comes to tax crimes the big factor in what level you are at is the tax loss and $277,243 isn’t enough to get you to more than 15 years.  Peter Goldberger, an attorney who focuses on appeals and other post-conviction aspects of federal criminal cases pointed out what I had missed. In arguing the tax loss for sentencing purposes IRS extrapolated the 33 clients to his entire client base which brought the loss to over $15 million.

Reflection

I regularly see cases of tax preparers performing shenanigans like those Castro was convicted of and what the government is seeking is an injunction that will force them to take up another line of work. What is different about the ones who instead end up facing forfeiting their liability?  Castro has argued that it his legal attacks on once and possibly future president Trump that have dictated his harsh treatment.  I have to leave that as an open question.

More significant is the lesson this teaches about tax practice.  If you rely on tax professionals to help you stay compliant while minimizing your tax, you will find that there is always somebody who claims they can get you a better result. To do this legitimately it is best to start before the tax year is over, when there are more things you can do that will affect your tax liability. If your return is done by an average tax preparer and you have it reviewed by a “superior” tax preparer, i.e. somebody who knows the tax law much better, it is likely that the latter will come up with something to consider unless your situation is extremely simple.  The thing is that extra effort may well reveal something that means you are possibly underpaying rather than overpaying.  Somebody who promises you that they can get a better result for you may be running an operation like Castro was convicted of running.

or great value continuing professional education.  I recommend the Boston Tax Institute

You can register on-line or reach them by phone (561) 268-2269 or email vc@bostontaxinstitute.com.  Mention Your Tax Matters Partner if you contact them.

Originally published on Forbes.com.

For articles oriented toward tax professionals check out Think Outside The Tax Box.

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