The recent sentencing of a Washington State chiropractor to federal prison for willfully failing to file his federal income tax returns got us thinking. In our combined 39+ years as IRS special agents, we have seen some instances where chiropractors were convicted of tax crimes and sentenced to federal prison. So we thought, "Why not reach out to the chiropractic community, and caution them to make wise and legal decisions regarding their income tax affairs?"
We know that medical professionals provide a critical service to the public, and an overwhelming majority of them play by the rules when it comes to our nation’s tax laws. However, chiropractors, like anyone else, can sometimes be lured into cheating on their taxes. Therefore, we hope our message will help dissuade those few chiropractors out there who are considering getting involved in an illegal tax evasion scheme. Our message is simple: An ounce of prevention is worth a pound of cure and preventing a problem is much easier than fixing one.
What are the more common tax crimes in simple terms?
• Tax evasion includes the willful underreporting of income and/or the willful overstating of expenses, deductions, exemptions etc., on a tax return. It is a felony punishable by up to five years in jail for each offense; that is, for each year in which tax was evaded.
• Willfully making a materially false statement on your tax return, such as intentionally not disclosing your interest in, or authority over, a financial account in a foreign country is also a felony. This is punishable by up to three years in jail for each offense; that is, for each false return.
• Willfully failing to file a federal income tax return is a misdemeanor which is punishable by up to a year in jail for each offense; that is, for each unfiled return.
Tax crimes can relate to individual, partnership, corporate, trust and employment tax returns. They all include possible hefty fines in addition to the aforementioned jail sentences.
Tax prosecutions nationwide
In the last three years, our agency, IRS Criminal Investigation, has helped prosecute around 3,120 people for tax crimes, including almost 830 for willfully failing to file. By way of example, the average sentences for the non-filers ranged from 34 to 40 months incarceration (defined as confinement to a federal prison, halfway house, home detention, or some combination thereof). The point of this article is to ensure that you never become one of these convicted persons.
Summaries of chiropractors sentenced in the last two years
California Chiropractor Sentenced to Two Years for Tax Evasion
Chiropractor #1 was sentenced to 24 months in prison, and ordered to pay a $50,000 fine and $1,162,222 in restitution for tax evasion.... According to the plea agreement, he admitted that from 1991 through 2004, he was a self-employed chiropractor. He agreed that his taxable income from 2000 to 2003 was $3.1 million, and the tax due and owing on that income was $1.16 million. Chiropractor #1 admitted that he had last filed his personal federal income taxes for the calendar year 1996 and, despite earning a significant income during the calendar year 2001, he willfully failed to file his federal income taxes by placing assets in nominee accounts, including a trust, to conceal his ownership of assets. He also used a trust to conceal his receipt of income and opened bank accounts using false Social Security Numbers.
Promoter of Fraudulent Trust Scheme is Sentenced to 20 Months in Prison
Utah Chiropractor #2 was sentenced to 20 months in prison followed by 3 years of supervised release and ordered to pay a $10,000 fine for conspiring to defraud the IRS in connection with a tax fraud scheme. The scheme called for Chiropractor #2 to place his chiropractic business into trust in 1993, then continue to operate his business as usual. In addition to that arrangement, Chiropractor #2 sold the same fraudulent trust scheme, though he admitted in his plea agreement that he had no actual knowledge of trusts and never actually performed the duties of a trustee. In one case, Chiropractor #2 confirmed he filed a lien against a client’s assets in an attempt to frustrate IRS efforts to collect an outstanding tax debt. Chiropractor #2 caused a total tax loss to the government of more than $1 million, including $248,000 related to his participation in the trust scheme.
Florida Chiropractor Sentenced on Tax Evasion Charges
Chiropractor #3 was sentenced to 36 months imprisonment, followed by three years supervised release, on three counts of tax evasion. The chiropractor was convicted for evading $40,000 in taxes on income earned in 1998 and 1999. The suit further alleged that Chiropractor #3 evaded the collection of more than $120,000 in taxes, interest, and penalties that he owed for tax years 1992-1995. During the trial, Chiropractor #3 testified that he was not a U.S. citizen for purposes of federal income taxes, but was a U.S. citizen for all other purposes, including carrying a passport and registering to vote. Chiropractor #3 testified that he was not required to pay income taxes and that the income tax on wages was unconstitutional. Chiropractor #3 further testified that, since his arrest, he realizes that the views regarding the tax system were wrong.
What should you do if you have questions or are involved in tax fraud?
Should you have questions about the federal income tax laws, visit www.irs.gov. And, if you have questions regarding a frivolous anti-tax argument, consult www.irs.gov/pub/irs-utl/friv_tax.pdf. You could also speak with a tax attorney, a certified public accountant, a licensed tax consultant or other such highly trained tax professional. Getting second or even third opinions regarding your tax situation is advisable if you have any concerns whatsoever.
If you are actively participating in a tax evasion scheme, we strongly urge you to immediately consult reputable legal and tax advice in order to begin the process of correcting your situation. You don’t want to wait for an IRS special agent to ring your doorbell.
A message exclusively from Special Agent in Charge Kenneth J. Hines
Throughout my career, I have seen people from all walks of life and professions cheating on their taxes and developing elaborate schemes to defraud the government. So, to paraphrase the advice that you would provide to your patients who lift heavy objects, when conducting your financial matters and preparing your tax returns, keep it straight to prevent any damage.
We want you to have long and successful careers as chiropractic professionals. So, please, don’t let that success be undermined by an "unnecessary road to sorrow" resulting from a violation of the federal income tax laws.
Kenneth Hines graduated in 1990 from Husson College in Bangor, Maine, with a degree in accounting. He conducted criminal investigations in Southern California from 1991 to 1999 which included, in addition to criminal tax cases, investment fraud and public corruption cases. Hines became a supervisory special agent in 1999 and is currently the Special Agent in Charge of the Seattle Field Office.
Daniel C. Wardlaw is a special agent and public information officer for IRS Criminal Investigation for the Pacific-Northwest. He is a 1986 graduate of the University of Oregon with a B. S. in Business Administration, and then attended the Federal Law Enforcement Training Center in Glynco, Georgia. He conducted criminal investigations concerning violations of the U. S. income tax laws and the money laundering statutes, the latter as they pertain to narcotics trafficking, for approximately 20 years.