People with severe tax problems come from all walks of life. We have seen criminal tax prosecutions against the very poor who claim phony earned income tax credits. Often, however, those who are prosecuted are folks who can easily afford to pay taxes. This post is about a famous obesity doctor who co-authored a best selling diet book with the late Robert Atkins, MD. How she was caught contains an important lesson for all.
Two weeks ago, a federal jury in Kansas City, Kansas convicted Mary Vernon of 5 counts of tax evasion. When sentenced later this year she faces 25 years in prison.
Prosecutors told jurors that Vernon earned over $750,000 between 2003 and 2008 from her work with Atkins Nutritional Services. She previously co-authored a book with Robert Atkins in 2004 called the Atkins Diabetes Revolution. Instead of paying taxes on her earnings, the IRS claimed that she created a phony corporation to hide her income.
According to the indictment, Vernon got tripped up when she and a live in companion applied for a loan at University National Bank. Like most lenders, University National asked for copies of Vernon’s tax returns. A little over a month after supplying copies of what she purported were her returns, the bank discovered discrepancies. Ultimately the entire scheme came to light.
Many tax evasion prosecutions start with fraudulent loan documents. In the hopes of getting a loan, most borrowers truthfully list their true income. Today, however, mortgage applications and many loan applications authorize the lender to obtain copies of returns directly from the IRS. Prudent lenders often verify that the return “copies” provided by the borrower match what was given to the IRS. When they don’t, the borrower is in a real Catch-22.
Defrauding a lender is a felony punishable by 20+ years in prison. Tax evasion is also a felony. Only one set of numbers is correct.
Prosecutors often seek out loan applications when investigating tax evasion cases or conducting audits. Whenever the numbers don’t match, an indictment becomes a real possibility.
If you are facing an audit and know that you have potential criminal exposure, contact an experienced tax lawyer immediately. Accountants are useful for preparing taxes and dealing with conventional audits but only lawyers enjoy a communications privilege with their clients. That means the IRS can compel your own accountant to testify against you if the case becomes criminal.
Don’t let an audit become a prison sentence.
The tax lawyers at Mahany & Ertl concentrate on state and federal audit defense and criminal tax matters. For more information, contact tax lawyer Brian Mahany at or by telephone at (414) 704-6731. All inquiries are confidential.
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