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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Tax Advice – Does your Dentist know the answer?

    Earlier this month the First Circuit Court of Appeals upheld the conviction of a couple who based their actions on some bad tax advice from their dentist.  (See United States V. Allen) Apparantly, the dentist convinced the couple that tax return filing and tax payment weren’t legally required.

    So in 1998, they began to claim exemptions from withholding for federal income taxes and their employer stopped withholding income tax from their paychecks.  They then classified themselves as independent contractors and as a result the employer stopped withholding FICA i.e. social security and medicare.  In 2000, they stopped filing tax returns.   They also closed all bank accounts, had checks written to them made payable to cash or directly to their creditors and transferred title on the home into a trust.

    In 2009, the Government charged them with one count of  conspiracy to commit fraud on the United States, one count of attempted tax evasion, and four counts of willful failure to file income taxes.

    At trial, the primary defense was a good faith reliance on the prior advice they received from this dentist.  There is a basis to argue that a taxpayer lacks the “willfulness” necessary for a tax evasion conviction, if he or she honestly (not necessarily reasonably) believed, based on a misreading of the tax law, that no tax is owed, [See Cheek v. United states, 498 U.S. 192 (1991)]  The Jury didn’t buy it though. The pair were convicted and each ended up recieving three years in prison.

    To some, the moral of this story is that you should file your tax returns, disclose your income, and pay the tax.

    For others, the outtake from this case, is to be extra careful when picking one of the many tax advice dispensing dentists in your area.

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