Federal prosecutors say Colorado man ignored warnings, promoted nationwide Ponzi scheme

A husband and wife in Northern Colorado who owned a heating and plumbing business in Estes Park and later turned to financial planning for clients nationwide are accused of hiding millions of dollars from the federal government through a tax fraud conspiracy.

The husband, Timothy McPhee, was sentenced Dec. 16 for ignoring the warnings of accountants and attorneys who told him the tax shelter he sold to taxpayers across the country was illegal. 

McPhee was ordered by a Denver federal judge to spend 12.5 years in prison for promoting and selling the tax shelter, according to case documents. Internal Revenue Service investigators estimated $159 million was paid into the tax shelter, and McPhee's clients only paid taxes on about 2% of their income. This amounted to $45 million in unpaid federal income taxes, per the IRS.

"McPhee gave directions to clients he knew violated basic tax laws," prosecutors wrote in a court document prior to McPhee's sentencing. "During private conversations with prospective clients and on stage at seminars, McPhee made bold claims about what clients could do once they purchased the Abusive-Trust Tax Shelter. As McPhee admitted in the (plea agreement), he knew that these claims directly contradicted IRS guidance."

Some of McPhee's clients raised concerns about his tax shelter, prosecutors stated. 

"As one client put it, '[My attorney] said it's tax evasion and I could go to jail,'" prosecutors added. "Another wrote to McPhee that he and others were 'very concerned that what we are doing with the trusts is straight out illegal and punishable by up to 5 years in prison.' Other clients retained attorneys and accountants, and those professionals also warned of the tax shelter's illegality. As one accountant wrote: 'I have been advised by federal attorneys, tax attorneys and estate attorneys that this structure is illegal and constitutes fraud, tax evasion, conspiracy and many other statutory violations of the Internal Revenue Service statutes and codes.' Despite receiving dozens of such warnings, McPhee continued to promote and use the Abusive-Trust Tax Shelter for more than six years, all the while ensuring his clients that the tax shelter was a lawful tax-reduction method used by the rich."

Furthermore, federal investigators claimed McPhee concealed a large portion of his own income from the IRS. Using the same tax shelter, he avoided paying $1.8 million of his own federal income taxes, prosecutors alleged. 

Also, in 2023, near the end of the tax shelter activity, prosecutors said McPhee began promoting another financial device. It was called the ROI Cash Flow Fund. It promised investors their money would earn 3% monthly returns by investing in a foreign currency exchange. 

McPhee instead used incoming money to make the 3% payouts to prior investors, a form of fraud called a Ponzi scheme. McPhee spent much of the incoming funds personally. Federal investigators and prosecutors were only able to retrieve a quarter of the more than $8 million that McPhee brought into that fund.

"As McPhee's income grew, his tax bill shrank," prosecutors explained in the pre-sentencing court document. "McPhee reported income when it was convenient to him and omitted it when it wasn't."

Prosecutors cited the 2021 loan application for $8.5 million to purchase a 14,000-square-foot home in Colorado. McPhee claimed $15.2 million in total assets and an annual income of $2.5 million in the application, yet he claimed a total income of only $44,660 in his tax form for that year. Those figures did not escape the bank officer. 

"Ultimately, Marcy and I don't make any money," McPhee responded in a Zoom call with the lender, as shown on the court document. "We control all the money in all of these trusts. All the companies are partially owned by trusts. I just need people to understand that we structure our stuff more like a billionaire, like the Rockefellers. We control everything; we don't own everything. We're bringing in about $2 million per year, and the tax liability last year was $2,500."

A federal grand jury indicted the 64-year-old McPhee in September 2023. Federal prosecutors leveled a dozen charges of conspiracy, tax evasion and wire fraud against him. He pleaded guilty to one of the wire fraud counts. In addition, McPhee agreed to repay the IRS more than $45 million and to repay his clients more than $6 million; 20 of the 41 clients will receive amounts in the six-figure range. McPhee also surrendered a quarter of a million dollars remaining in his bank accounts. 

Meanwhile, a number of alleged accomplices were named as defendants in separate but related cases:

• McPhee's wife, Marcia Predmore, was also indicted for her role in the tax shelter and personal tax evasion. 
• Larry Conner of Frisco, Texas, allegedly worked in concert with McPhee and, at times, Predmore to attract clients to the tax shelter, according to his indictment. The three conducted seminars in Estes Park, Fort Collins, and Cabo San Lucas, Mexico. He is also charged with falsifying tax returns; those of the tax shelter's clients and his own. Conner was the first of the group to be indicted, but his case has progressed the slowest and is still in the motions phase.
• Roderick Prescott of Orem, Utah, owned and operated "The Stewardship Institute" and taught clients to use a "private family foundation" as the final layer of the tax shelter, according to the indictment. Notably, Prescott was sentenced to 30 months in federal prison in 2009 for tax evasion. He was barred by the U.S. Department of Justice from promoting abusive tax shelter scams in 2003.
• Suzanne B. Thompson, an accountant and resident of Kalispell, Montana, owned a bookkeeping service. 
• Weldon Wulstein of South Lake Tahoe, Calif., is also an accountant and owned a tax preparation business. Wulstein and Thompson formed Concierge Acctncy Corporation. They are accused of assisting in the preparation of false income tax returns on behalf of clients who used the tax shelter. 

Predmore, Prescott, Thompson and Wulstein are headed for trial in April to fight the charges of conspiring to defraud the IRS.

• Heath Posey of Thornton and Odessa, Texas, was the Chief Financial Officer of the cash flow fund, took over the distribution of the funds to investors, and "took actions to help McPhee cover up the fraudulent actions," per a case document. Posey pleaded guilty Dec. 17 to one count of wire fraud. He has also agreed to pay more than $262,000 to the IRS. He is scheduled for sentencing on March 31 and faces up to five years in prison. 

"Mr. McPhee stole more than just money from his victims. He stole their trust, their peace of mind and their future," said Amanda Prestegard, Special Agent in Charge, IRS-CI Denver Field Office, following McPhee's sentencing. "Our goal is not just to enforce the law, but to protect honest taxpayers from being misled by promoters who profit from deception."