The $920,864 Fraud Case Against a Lawyer Who Once Signed With the Baltimore Ravens

Jesse Mitchell III grew up on the Mississippi Gulf Coast, the son of a shipyard worker, and went to Ole Miss on a football scholarship. He signed a one-year contract with the Baltimore Ravens — cut short by injuries — then built his own plaintiff’s law firm. In 2015, after a $2.1 million legal fee, his financial advisors sold him a tax plan that promised to cut his taxes from $525,000 to $243,629. The IRS called it fraud and assessed a $526,208 deficiency plus a $394,656 penalty. The Tax Court’s answer turned on what the IRS could not prove — and a clock that had already run out. This is Mitchell v. Commissioner, T.C. Memo. 2026-102.

The one idea to carry out of this story: when the IRS reaches back more than three years, it has to prove fraud by clear and convincing evidence — a high bar.

Who was Jesse Mitchell III?

Mitchell grew up on the Mississippi Gulf Coast. His father worked at a shipyard and encouraged his three sons to make their own way in life so they would not have to work in a shipyard. Mitchell attended the University of Mississippi on a football scholarship and graduated with a bachelor of accountancy degree. After college he signed a one-year contract with the Baltimore Ravens but was cut because of injuries. His football career over, he went to the University of Mississippi School of Law — where he took a class on income taxation — and graduated in 2008.

He spent two years at the large firm Baker Donelson, then moved to a smaller firm, and in 2012 started his own firm, the Mitchell Law Firm, focused on plaintiff litigation, including catastrophic injury. During 2015 he was the firm’s sole shareholder and president; the firm was an S corporation (a business structure that passes income through to its owners). He was the first member of his family to own a business. When the new firm needed money, a family friend — lawyer Joey Langston, whose wife treated Mitchell “like a son” — helped fund it.

The $2.1 million fee — and the $450,000 that went into a “project”

Mitchell’s big year was 2015. Years earlier, while at Baker Donelson, he had worked for William Griffin, owner of an oil and gas exploration business, Griffin & Griffin. The firm’s contingency contract entitled it to 33.3% of any recovery up to $750,000 and 50% beyond that. At mediation on April 16, 2015, the parties settled a lease contract breach suit against the United States for $5.1 million.

Then Mr. Griffin asked Mitchell to cut his fee so Griffin & Griffin would net $3 million. Mitchell agreed to a fee of $2 million plus anything he negotiated above $5 million — and the firm received $2.1 million. But the fee came with a twist. Under a Settlement Disbursal Agreement dated August 5, 2015, the firm agreed to “exchange and defer $450,000 of its earned attorney’s fees for an interest in a Griffin & Griffin … project(s) equivalent to the deferred and exchanged $450,000 fee.” The projects were to be identified “within the next twenty-four months.” Neither Mitchell nor his firm ever received an interest in any Griffin & Griffin project. In plain English: he gave up $450,000 of fee now for a promised piece of a future deal — and never got the piece.

On its 2015 return, the firm included a $3 million payment to Griffin & Griffin in its cost of goods sold (a business expense line) — as distinct from the firm’s own $2.1 million fee. The IRS disallowed $450,000 of it, contending that amount had been exchanged for property rights — a future interest in a mining operation. The court would later note that nothing about the fee looked like concealment: there was no failure to file returns, no implausible behavior, no hidden assets.

The loans that came back as a deduction

The Langston Firm had lent Mitchell $50,000 in June 2012 and $32,000 in July 2012, plus $100,000 in February 2013 — all deposited into the Mitchell Law Firm’s operating account. On September 9, 2015, the firm repaid $240,000, which its general ledger recorded as “settlement fees.” Mitchell’s accountant recorded $182,000 as principal and $58,000 as interest.

The revenue agent allowed $100,000 of the repayment but disallowed $82,000 of principal and $58,000 of interest. The dispute was bookkeeping: the 2012 loans had been recorded inconsistently — one as “cash in bank,” another as “general practice fees” — while the 2013 loan had been included in the firm’s reported income. Mitchell’s CPA testified that the loan income had been reported “out of an abundance of caution.” The court found the loan issues were bookkeeping misclassifications, not part of a fraudulent scheme: the Mitchells filed their returns and concealed nothing.

The tax plan that promised to cut his taxes in half

Since 2012, the Mitchell family’s financial advisor had been Addicus Advisory, whose founding partners included Andrew Adams — an Ole Miss friend of Mitchell’s with an M.B.A. and nine years of experience by 2015. Addicus reviewed a plan from Capital Preservation Services (CPS), a boutique tax planning firm run by Todd Mardis and Walton Dallas, a tax attorney with about 30 years of experience. Addicus studied the plan for about 18 months before referring clients to CPS. Over 600 people implemented the CPS Marketing Plan.

The plan prepared for the Mitchell Law Firm showed taxes of $525,000 before the plan and $243,629 after. Its materials discussed civil penalties, including the fraud penalty, and explained the difference between tax avoidance and tax evasion — avoidance, it said, was legal. An unsigned legal opinion that came with the plan emphasized that it was “assumed there is a substantial and proper business purpose for each component of the [p]lan.” Mitchell later testified that he was “impressed by CPS.”

The plan had three moving parts, and the court would eventually disallow all three — while still refusing to call any of them fraud.

The marketing company run by strangers — and staffed by his kids

First, the plan recommended forming a separate marketing company. Under CPS’s guidance, JM Marketing, Inc. was incorporated in Mississippi on November 16, 2015. Its majority shareholders were Candace Simmons and John Hall, 48% each. Ms. Simmons did not pay for her interest and never attended any meetings; the bylaws required annual shareholder meetings, but none were ever held. The Mitchells were officers of the company, and two of their minor children were vice presidents of marketing — the opinion notes that naming a child as an officer was common practice for clients who bought the CPS plan.

On November 25 and December 30, 2015, the Mitchell Law Firm paid JM Marketing $75,000 and $425,000 — $500,000 in total — and deducted it as advertising. But JM Marketing reported gross receipts of only $75,000 for 2015 and $225,000 for 2016. During 2016, JM Marketing paid the Mitchells $240,000 for construction work on their residence — the plan had advised improving the home so it could be used for meetings and events. Mitchell testified that his firm organized free football camps, revamped its website, and ran a branding camp, and that a photograph of one of his sons was on the cover of the football camp brochure. The court found the Mitchells had not substantiated that the $500,000 was reasonable or shown the specific services behind it — and held that this kind of marketing fee is not an ordinary and necessary business expense.

Renting his own house to his own firm — and a $40,000 management fee

Second, the plan recommended that the firm rent the Mitchells’ personal residence as a meeting place. On December 30, 2015, the firm paid the Mitchells $35,000 for the use of their home for business meetings. The firm deducted $89,739 in rent on its 2015 return; the IRS disallowed $52,680. The plan had told the Mitchells to support the rental rate with independent comparables. They never did. The court found the payments unreasonable and “not likely rent.”

Third, the firm deducted $40,000 in management fees paid to JDM Advisory, a company formed on Addicus’s advice the same year as JM Marketing and the Griffin fee. Mitchell was the general partner; his three sons were the only limited partners. The IRS disallowed the fee, contending there was no evidence JDM Advisory performed any management services. The court agreed.

What did the IRS assess?

The IRS opened its examination in September 2017 and expanded it in March 2018. The revenue agent ran a bank deposit analysis of the firm’s accounts. Beyond the items above, she made smaller adjustments: disallowing the child and dependent care credit, computational changes to itemized deductions (math adjustments to the deductions list), recharacterizing a self-employment health insurance deduction (moving it from one deduction line to another), $600 in unreported income, and a $12,505 business interest deduction.

• Deficiency for 2015: $526,208 — a deficiency is the amount the IRS says you underpaid
• Civil fraud penalty (§6663, 75%): $394,656
• Total at stake: $920,864 — before interest. No deficiency was determined for 2016.

But there was a problem with the timing. The Mitchells filed their 2015 joint return on October 5, 2016 (the firm’s return was filed September 12, 2016). The Notice of Deficiency did not arrive until March 23, 2023 — more than six years later. Under Section 6501(a), the IRS generally has three years to assess a tax after a return is filed. The only way around that clock is §6501(c)(1): if the taxpayer filed “a false or fraudulent return with the intent to evade tax,” there is no time limit at all. So the entire case came down to one question: could the IRS prove fraud?

Fraud is not a guess — the standard the IRS had to meet

Section 6663 imposes a 75% penalty on the portion of an underpayment due to fraud. The IRS must prove it by clear and convincing evidence, a higher standard than “more likely than not”: both an underpayment and intentional wrongdoing meant to evade a tax known to be owing — what the law calls scienter, a knowing intent to do wrong. Fraud is never presumed and cannot rest on mere suspicion. It can be proved by circumstantial evidence — the “badges of fraud” courts look for: understatement of income, inadequate records, failure to file, implausible explanations, concealment of assets, failure to cooperate, false documents, dealing in cash, illegal activity, and the like. One badge is not dispositive, but several together are strong evidence. And the badges are weighed in light of the taxpayer’s sophistication and education.

The IRS argued that Mitchell — a lawyer with an accounting degree who earned an A in his law school tax class — had to know what he was doing. The court was not persuaded. Mitchell testified that he was “not a numbers person” and did not remember his tax class. He does not practice tax law; his practice is plaintiff litigation. He had never prepared a tax return. He testified credibly, the court found, that he needed professionals for accounting, tax, and investment advice — and his education did not weigh in favor of fraud.

Why the IRS lost on fraud, badge by badge

The court agreed with the IRS that the deductions were overstated — the rent, the $500,000 in marketing fees, and the $40,000 management fee. But overstated deductions are not fraud. Working through the badges, the court found the record pointed the other way:

• No pattern. The Mitchells’ returns had never been audited before 2015. Their 2016 returns were audited too — and no deficiency was determined, for 2016 or any later year. One bad year is not a pattern of substantial understatement.
• No concealment. The records were not destroyed or falsified. They were kept and handed to the family’s CPA firm, Byrne Zizzi, which had prepared the Mitchells’ returns for ten years, kept the firm’s books, and had full access to everything. The CPA was, by the court’s account, conservative — treating a deposit as income unless there was clear evidence it was not.
• No lies. The Mitchells gave consistent statements. Mitchell and his accountant gave credible testimony at trial. And the revenue agent herself testified that the Mitchells never made misstatements or lied to her.
• Reliance on advisors. Mitchell did not invent the plan. His financial advisor since 2012 reviewed it for about 18 months and recommended it; a tax attorney with about 30 years of experience was in charge of CPS. “Petitioner was not the one that created the plan that contained ‘bogus deductions.’” And when Addicus raised concerns in 2017, Mitchell hired a law firm to unwind JM Marketing — terminating its contract, resigning, and dissolving it in 2018.
• No scienter. The court’s key sentence: “Petitioner probably should have known the CPS Marketing Plan was too good to be true. From his testimony we conclude that petitioner did not have scienter and that his actions were not sinister.” The opinion draws the line plainly: “Negligence differs from fraud because fraud requires scienter.” The errors here were, in the court’s words, “accounting errors or mistakes that are often made on returns.” That is not fraud.

The court’s conclusion: “The evidence supports unsubstantiated deductions and expenses, but those are insufficient to establish fraudulent intent by clear and convincing evidence.” The IRS had failed to prove fraud.

The clock: why the whole bill disappeared

Because fraud was not proved, the unlimited assessment period in §6501(c)(1) did not apply. The ordinary three-year period had expired long before the March 2023 Notice of Deficiency. The court held: “Respondent’s determinations related to 2015 are barred by the statute of limitations.” Decision was entered for the Mitchells. The $526,208 deficiency and the $394,656 fraud penalty — $920,864 in total — were wiped out by the clock, not by a ruling that the deductions were right. The court had already held they were not.

That is the hard edge of this case, and the lesson that matters most: the IRS lost because it waited too long and then bet everything on the one charge it could not prove. Had the notice arrived within three years, the disallowed deductions could have supported a deficiency — but the IRS reached back only by alleging fraud, which it could not prove.

What happened to the people who sold the plan?

Mitchell was not the only one who walked away from the CPS Marketing Plan. In August 2017, Mr. Adams, Mr. Sage, and Mr. Dixon decided the plan should be shut down, and Addicus began advising its clients to unwind their marketing companies. And on July 26, 2024, the Tax Division of the U.S. Department of Justice sued CPS and its principals — United States v. Dallas, No. 24-cv-439 (S.D. Miss.) — alleging that they “organize, promote, or sell (or assist in the organization, promotion, and sale of) purported tax savings strategies that encourage customers to claim bogus deductions on their federal income tax returns.” The promoters’ ending is still being written. The customer’s ending was decided by a deadline.

The checklist: what Mitchell teaches about a fraud charge

• Fraud needs intent, not just bad deductions. Overstated deductions, even by hundreds of thousands of dollars, are not fraud without scienter — a sinister motive to evade a tax known to be owing. The IRS must prove it by clear and convincing evidence, and “probably should have known” is not enough.
• Your records are your character witnesses. The Mitchells kept their books, gave them to a CPA, and filed every return. The revenue agent testified they never lied to her. That record is what defeated the badges of fraud one by one.
• Reliance on professionals cuts both ways. Following a financial advisor’s recommendation for 18 months helped Mitchell on fraud — but it did not save the deductions. Advice is not a shield against a disallowance; it is, at best, a shield against the penalty.
• The three-year clock is real — and it runs both ways. The IRS has three years to assess after you file. If it needs the fraud exception to reach back further, it must actually prove fraud. A late notice plus an unproved fraud charge equals no assessment at all.
• “Too good to be true” is a warning, not a verdict. A plan that cuts your taxes from $525,000 to $243,629 deserves a second opinion from someone who did not sell it to you. Mitchell’s CPA was aware of CPS but did not refer the Mitchells — or any other client — to CPS. That silence was information.
• Kids on the org chart are a red flag. Minor children as vice presidents of marketing, majority shareholders who never attended a meeting — one of whom never paid for her shares — and a company that reported $75,000 in gross receipts the year its law-firm client deducted $500,000 — the court saw all of it, and it all pointed the same way.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems — back taxes, liens, levies, garnishments, and audits — for individuals and businesses in all 50 states and around the world.