“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose the pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” Judge Learned Hand. While it is recommended to take full advantage of tax benefits available through proper business planning, shirking one’s tax liability will land a person in federal prison. Such was the case for Dr. George Anderson, 57, of Farmville, Virginia. U.S. District Judge Henry Hudson, sitting in Richmond Virginia, sentenced Anderson to 33 months in prison followed by one year of supervised release and ordered him to pay $471,919 in restitution to the IRS for his role in a criminal tax evasion matter.

Anderson owned and operated Farmville Anesthesia Associates Inc. In an attempt to reduce his business’s tax liability to zero, in 2001 he started diverting income to “sham and nominee entities.” Court documents revealed that Anderson moved several hundreds of thousands of dollars out of his company into nominee trusts and limited liability companies. These funds were then used for Anderson’s personal benefit including the construction of a residence. He later falsely reported these payments as legitimate business expenses. What’s more, he did not report the expenditures as income on his personal tax return.

For his conduct, Anderson pled guilty to two counts of willfully filing false returns, a false 2007 corporate income tax return and a false 2005 personal income tax return. To be clear, these return were false because neither reported income earned or spent out of the bank accounts held in the names of the nominee trusts and LLC’s.

For Judge Learned Hand “nobody owes any public duty to pay more than the law demands.” However, for those that actively try to deceive the IRS, harsh penalties exist. If you find yourself in a similar or related situation you should consult a knowledgeable and experienced tax attorney. While an accountant’s focus is accuracy, the focus of an attorney is advocacy. At the Tax Law Office of David W. Klasing we place a premium on both accuracy and client advocacy.