Nearly four years after criminal charges were filed, Epic Charter Schools’ founders are about to learn whether they will be bound over for trial in the state’s massive racketeering and embezzlement case against them. But a highly confidential, deep-dive investigation by the Internal Revenu e Service is still ongoing and unresolved.  Newly obtained public records reveal Oklahoma’s largest charter school is out of the woods when it comes to keeping its tax-exempt status. However, federal investigators identified “potential excess benefit transactions” between Epic and its founders’ for-profit management company, which could result in significant financial penalties.  Inventories listing all 1,100-plus school files obtained by IRS investigators indicate the scope of the inquiry extends to Epic’s governance, as well as its high-dollar management and technology contracts since its founding 15 years ago. “It’s a remarkable letter from the IRS, in that they’ve said, `We are going to let you keep your 501(c)(3), but we are seeing these transactions and we are investigating them,’” said Bill Mahaffey a Colorado-based attorney whose focuses include tax-exempt financing and charter schools.  He has written on the niche subject of increased IRS scrutiny of charter schools operated by for-profit management companies. “The whole notion is to let a nonprofit keep its exemption but cause the persons participating in an excess benefit transaction to disgorge themselves,” Mahaffey said. “This is a remedy for being paid too much.” Student Learning Funds Probed Epic Youth Services, a private company contracted to manage the charter school system for a decade, made school co-founders Ben Harris and David Chaney very wealthy. But their longtime CFO Josh Brock, who is charged as a co-conspirator, has testified that all three profited handsomely by dodging accountability rules for school spending and relying on taxpayer-funded school personnel, computers and facilities for carrying out administrative work the for-profit EYS company was paid to do. Officials from the Oklahoma State Auditor and Inspector forensic division have testified in district court that EYS monthly invoices were falsified by using estimates, rather than actual costs, and for such services as child nutrition for virtual school students – who do all of their schoolwork from home. The transactions being scrutinized by IRS investigators include payments from Epic’s student learning funds, according to public records. Notably, a forensic auditor for the state testified in court that Harris and Chaney took into EYS business accounts some $144 million in Epic student learning funds, which they now contend were their private funds, but never claimed them as personal or business income on their tax returns. Pending state criminal charges allege Epic student learning funds were also used illegally to cover political donations, expenses for a California charter school, $1.1 million in personal credit card expenses by Brock, and $375,000 in personal credit card expenses by Chaney. Excess benefit transactions pose significant risks to nonprofit organizations, including potential IRS penalties ranging from 25% to 200% of the benefit’s value, and even revocation of tax-exempt status.  IRS Code Section 4958 calls for these penalties when a non-profit provides insiders, such as officers, board members, founders, key employees, their family members, and entities owned by those individuals, with payment that exceeds the fair market value of what the organization receives in return, including services. “The payments, including student learning funds, issued to a for-profit management company during the fiscal years above were considered as potential excess benefit transactions defined above,” reads an IRS notice concerning Fiscal Years 2019, 2020 and 2021 that was received by Epic in January 2025. “The issue will be evaluated and addressed in related returns if we determine that the payments are excess benefit transactions.“ Mahaffey, a tax law expert, said a host of individuals and entities with influence over a charter school’s operations and management could face IRS scrutiny. “Certainly, board members and officers can be a disqualified person, even if they are not getting paid, but so can a contractor if they are placed in a management role,” Mahaffey said. “The difficulty for board members is they have a duty and obligation to review contracts and to oversee them. They can be exposed to some level of penalties – not as huge as the actual person receiving large payments – but it can get to the directors who are supposed to be overseeing the management company.” The IRS notice to Epic dated January 2025 stated the charter school would continue to qualify for federal tax exemption as a nonprofit educational organization, albeit with deficiencies noted.  It was addressed to Jeanise Wynn, Epic’s now-former deputy superintendent of finance, and school board member Ginger Casper. Wynn said she and Casper met with IRS investigators in person twice over the preceding three years, while the remainder of the investigation was conducted via remote inquiry. Wynn resigned in April 2025 amid a budget crisis and no longer has access to school files.  But she said the school’s concern with the IRS investigation ended when it received notice that no change would be made to Epic’s tax-exempt status. State and Federal Scrutiny Harris and Chaney are due back in Oklahoma County District Court on Thursday to hear a judge’s ruling about whether state prosecutors presented enough evidence during the preliminary hearing to proceed to trial. They are charged with 15 counts, including embezzlement, computer crimes and money laundering. Brock has agreed to a plea deal with prosecutors to avoid prison time in exchange for his testimony against Harris and Chaney. Asked for a status update on its investigation, which began in January 2022, an IRS representative pointed to legal limitations on what its law enforcement branch can discuss about investigations. “As a matter of standard practice, IRS Criminal Investigation (IRS‑CI) cannot confirm or deny the existence of any investigation, past or present, nor can we comment on the status or outcomes of any matters that may or may not involve our agency. This practice protects the integrity of investigative work and the privacy of all individuals and entities,” stated Eunice Choi, special agent and public information officer at the IRS Criminal Investigation-Dallas Field Office, in an email to Oklahoma Watch.   A records request to Epic turned up extensive inventories listing more than 1,100 files that school officials have submitted to the IRS, at agents’ requests. They include bank statements, tax filings, information about school board members dating back to 2010, minutes of board meetings, a list of key figures, student learning fund records, EYS contracts and invoices, treasurer reports, school policies, technology company agreements and payments, and even school brochures.  A couple of IRS inquiries in 2022 were addressed to Paul Campbell, who joined Epic’s governing board as chair in May 2021 and immediately led the move to cut all ties between the charter school system and its founders.  With Campbell at the helm of Epic’s board, investigators from the IRS and the Oklahoma State Bureau of Investigation were ushered in to examine the school’s financial records and processes. He served through July 2022, just a month after criminal charges were handed down against Harris and Chaney. Campbell said that because the investigation is still open and active, he was unable to comment on whether he remains in touch with IRS investigators. Brandon Webb, deputy superintendent of legal services at Epic throughout the IRS investigation, and Ginger Casper, who still serves on Epic’s school board, declined to be interviewed. Former Epic Superintendent Bart Banfield and attorneys for Harris and Chaney did not respond to requests for comment. Andrea Eger covers a variety of topics for Oklahoma Watch. Contact her at [email protected]. The post IRS Flags Potential Excess Benefit Transactions at Epic Charter Schools, State Criminal Trial Looms appeared first on Oklahoma Watch. ...read more read less