Doctor Pleads Guilty to Federal Tax Charges as Fallout from Prescription Drug Scheme Grows

When we seek medical treatment from a doctor, nurse, surgeon, pain specialist, or another medical professional we expect that they will only take actions that are likely to improve or cure your condition. Unfortunately, some doctors may allow for the desire to run a large and successful medical practice to take precedent over the care each and every individual patient deserves.  In some instances, this desire manifests itself as “giving the patient what he or she wants” so as to ensure that individuals will return to the practice many times. In other scenarios, the desire to run a profitable operation is pervasive and impacts all aspects of the practice’s operations including bookkeeping and other financial aspects.

Doctors who engage in illegal practices to earn income are still required to pay taxes. Doctors who face criminal charges for prescribing prescription drugs without a medical basis or for charging for medical services that were not rendered also often come to face criminal tax charges.

How Did the Doctor Earn the Illegal Income that Was Not Reported on His Taxes?

Dr. Kevin B. Lake was a physician, manager, and the owner of Columbus Southern Medical Center. At some point in the mid-2000s prior to 2006, the practice apparently became involved in prescribing a large amount of prescription painkillers. According to court documents filed by prosecutors, from 2006 to 2013, Lake was aware that doctors and medical professionals at the practice would prescribe controlled substances including Xanax, oxycodone, and hydrocodone when no legitimate medical reason was present.

Over the relevant time period, statistics show that medical office’s practices became increasingly brazen. Whereas roughly 60 percent of patients were prescribed controlled painkillers and other substances in 2004, nearly 92 percent of patients were prescribed controlled substances in 2009 and 2010. Over this time period, hundreds of patients would visit the clinic on a daily basis with roughly 85 percent of the patients being repeat visitors.

In 2010, the DEA took an interest in the clinic and Dr. Lake took steps to that were likely intended to insulate him from connections to the clinic. Lake sold the stock in the company he owned to employees, stopped issuing himself a salary, and made a claim for disability. The disability claim was later determined to be fraudulent.

What Tax Failures Did the Doctor Engage In?

In a plea agreement, recently filed with the court, the doctor admitted that he maintained an illegal “drug premises.” He also admitted to exclusive control of the roughly $38 million in income earned through the illegal drug activities. The doctor admitted to laundering at least $20 million of this illicit income, making fraudulent filings for unemployment benefits, and fraudulent office practices that included “upcoding” to bill for higher level, more lucrative medical services that were not actually rendered.

As for the tax failures, the doctor admitted to falsely filing income tax returns on both his personal and corporate taxes. While the doctor paid himself greater than $90,000 annually, in 2010 through 2013, he attempted to conceal this income as rental payments for the corporate use of his personal residence for retreats and meetings. The doctor also claimed inflated charitable deductions on his personal taxes and inflated depreciation deductions premised on “equipment” purchases that did not actually occur. Finally, Lake also admitted to mischaracterizing regular income as capital gains to benefit from the lower tax rate.

What Penalties Can One Face for Tax Fraud of this type?

The doctor is facing an array of tax evasion, fraud, and other charges. In light of the guilty plea and the doctor’s cooperation in the investigation, the parties involved have recommended a federal prison sentence of 60 months. The recommended sentence is currently under review by the presiding judge. In any case, the sentence ordered will also likely include supervised release following the doctor’s release from prison. Furthermore, individuals who are convicted of fraud and tax evasion are typically required to pay restitution on their ill-gotten gains, including interest. Doctors and other professionals who are convicted of tax crimes or other violations of the law can also have their professional license suspended or revoked.

Facing Criminal Tax Charges as a Professional?

If you are facing criminal tax charges as a licensed professional – a doctor, lawyer, accountant, real estate agent, etc. – you face all the legal consequences plus your professional license can be thrown into jeopardy. Likewise, your professional license is subject to suspension in California if you have significant tax debts. Professionals have even more on the line when facing tax charges and allegations.

When facing tax charges, the tax attorneys and CPAs of the Tax Law Offices of David W. Klasing can fight to protect your reputation, license to practice, and bottom line. If you are facing an audit or have already been charged with a crime, we can proceed aggressively and strategically to protect what is important to you. To schedule a confidential reduced rate consultation at our Orange County or Los Angeles offices, call 800-681-1295