Dr. from Atkins diet loses appeal of prison sentence for tax evasion

In a world of diet fads and new, trendy eating-plans surfacing every week, it is unusual for any one of them to be as consistently followed and celebrated as the Atkins diet. One of the main elements of the Atkins lifestyle involves skipping the carbohydrates and focusing on proteins.  That being said, one of the championing physicians of the Atkins diet will find herself on a strict prison diet after she lost her appeal that challenged the length of time that she’ll spend behind bars.

Dr. Mary Vernon, 62, from Kansas, found herself convicted of multiple counts of tax evasion, for her attempts to not only conceal her income from the IRS, but for also attempting to thwart efforts of the feds to collect on past tax debts. After the trial court found Dr. Vernon guilty, the judge sentenced her to 41 months in a federal prison, followed by three years of supervised release. She (and her legal team) took the position that her lengthy sentence was the result of a miscalculation of how much she owed the IRS. The Court of Appeals for the Tenth Circuit heard arguments in her case.

Dr. Vernon had multiple sources of income from working in hospitals and other institutions wherein which she provided medical care. But the source of income that brought her the most income (and likely the most notoriety) was her role in Nutritionals, Inc., the corporate entity that created diet plans and publications that showcased the Atkins plan. Starting in 1991, Dr. Vernon stopped paying federal income taxes and continued to withhold any payments until 2005. The IRS noticed her activity and after going through the procedural motions, began to take action to secure payment from Dr. Vernon by placing tax liens on her property. Although the IRS collected millions of dollars over an eight year period, there was still an amount that went unpaid.

Vernon decided in the mid-2000’s that she would attempt to thwart the government’s attempt at retrieving the tax money that she owed by creating a sham corporation to hold her earnings. Rockledge Medical Services was set up in the name of Dr. Vernon’s domestic partner, Sara Wentz. This structuring allowed money to flow into a corporation that Dr. Vernon had no ownership interest in. In fact, the doctor’s services were purportedly on a voluntary basis and she therefore received no income from the corporation that could be levied by the IRS. Sara Wentz work as a conduit didn’t end there. The IRS had attached a lien to Dr. Vernon’s personal residence, when the home was sold, the buyer was none other than Ms. Wentz. The government alleged in court that they believed that the deal wasn’t at arms-length and that the purchase price did not accurately reflect the actual value of the home.

When the Tenth Circuit handed down their decision last week, they sided with the federal government. They found that there was, in fact, no miscalculation at the trial court level that led to a longer-than-appropriate sentence. The Tenth Circuit identified that the increased prison sentence came from Dr. Vernon’s direction to her attorney to set up a sham entity to attempt to fool the government.

This story is a prime example that taxpayers should not attempt to dupe the IRS after they have already been caught. Dr. Vernon’s prison sentence would have been drastically less if she had not knowingly taken steps to mislead the government. When a taxpayer finds out that they are in trouble with the IRS or a state taxing authority, they should consult with an experienced tax defense attorney immediately. A seasoned tax lawyer will be able to give you the necessary guidance to mitigate (instead of amplify) the negative consequences of a tax investigation or prosecution.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have vast experience in representing taxpayers in tough tax situations. Our team, which has benefited from extensive legal and accountancy training, can prevent you from making some of the big mistakes that are made when taxpayers choose to fight the government alone. Making incriminating statements, voluntarily producing evidence that can be used against the taxpayer in court, and taking evasive steps that may increase criminal penalties, are the types of common missteps that an experienced tax defense attorney can help you avoid. Don’t let the threat of a criminal prosecution or time in a federal prison keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.