Colorado Man Pleads Guilty to Defrauding IRS of $45M via Illegal Tax Shelter

A Colorado man has accepted a guilty plea in a multi-year investment fraud scheme that defrauded the U.S. government of nearly $45 million through an illegal tax shelter. Timothy McPhee of Estes Park, who operated from 2018 through 2023, promoted the scheme to taxpayers nationwide by creating a complex web of trusts and foundations that were falsely marketed as legitimate tax shelters [1]. The structure included what he called a business trust, a family trust, and a charitable trust, all designed to mislead clients into believing they could legally avoid paying federal income taxes on most of their earnings [2].

McPhee instructed clients to transfer nearly all of their business income into these trusts and to file falsified tax returns that showed the income belonged to the trusts rather than the individuals [2]. He further advised clients to spend trust funds on personal expenses and to claim those as deductions, effectively reducing their taxable income to about 2% [2]. Despite warnings from accountants and attorneys that the scheme was illegal, McPhee continued to promote it, knowingly violating IRS guidelines [3].

In addition to the tax evasion, McPhee operated a fraudulent investment program known as the “ROI Cash Flow Fund,” which he claimed would provide investors with a 3% monthly return on investment. He misrepresented the fund as a legitimate opportunity to profit from foreign exchange trading by a third-party borrower. Investors were persuaded to send over $8 million to a bank account controlled by McPhee, but instead of using the funds as promised, he used them to make payouts, cover personal expenses, and even transferred more than $2 million to one of his trusts [3].

Federal authorities revealed that McPhee also used the same tax shelter to conceal more than $5 million in income and evade paying over $1.8 million in taxes between 2016 and 2021 [2]. He now faces up to 30 years in prison for charges including conspiracy to defraud the United States, tax evasion, and wire fraud. A sentencing hearing is scheduled for October 23 [1].

The case reflects the increasing focus by U.S. authorities on financial fraud schemes that exploit regulatory gaps and mislead investors. Prosecutors emphasized the seriousness of the crime, noting that such activities not only defraud the government but also erode trust in the financial system [4]. The guilty plea marks a significant legal milestone, but it also underscores the ongoing challenges regulators face in identifying and addressing sophisticated financial crimes [1].

Sources:

[1] https://www.justice.gov/opa/pr/colorado-man-pleads-guilty-years-long-scheme-defraud-irs-and-operating-multi-million-dollar

[2] https://denvergazette.com/news/estes-park-defraud-irs-millions/article_fe811780-c42a-41fa-b7e6-cf12de051493.html

[3] https://www.forbes.com/sites/kellyphillipserb/2025/08/08/guilty-plea-for-role-in-directing-and-promoting-an-illegal-tax-shelter/

[4] https://www.mitrade.com/insights/news/live-news/article-3-1026323-20250809