Tax Court Rejects Frivolous Filing Penalty for Taxpayer Invoking the Fifth Amendment in Tax Return
San Diego Area Return Preparer Pleads Guilty to ID Theft and Admits to Over 4000 False Returns
The Los Angeles United States Attorney’s Office is prosecuting related cases involving doctors and an alleged kickback scheme. The principal charges involve mail fraud, money laundering, and honest services fraud, but one of the alleged conspirators is also facing a tax charge. According to the press release (you can see the original by clicking here):
[T]he former chief financial officer (CFO) of a Long Beach, California, hospital, two orthopedic surgeons and two others have been charged in long-running health care fraud schemes that illegally referred thousands of patients for spinal surgeries and generated nearly $600 million in fraudulent billings over an eight-year period.
Two of the defendants have pleaded guilty and three others have agreed to plead guilty in the coming weeks. All five defendants have agreed to cooperate in the government’s ongoing investigation into kickbacks for patient referrals and fraudulent bills for spinal surgeries.
The schemes involved tens of millions of dollars in illegal kickbacks to dozens of doctors, chiropractors and others. As a result of the illegal payments, thousands of patients were referred to Pacific Hospital in Long Beach, where they underwent spinal surgeries that led to more than $580 million in bills being fraudulently submitted during the last eight years of the scheme alone. Many of the fraudulent claims were paid by the California worker’s compensation system and the federal government.
Often, where there are fraud proceeds, tax charges will be brought where the DOJ has proof that the target willfully failed to include the illicit income on his tax return. The illicit proceeds can constitute income even if the target ultimately has to return the money to its victims through restitution. In this case, the prosecutor’s office allege a for-profit scheme, with efforts by the defendants to cover their receipt of the kickbacks:
The conspirators in the Pacific Hospital scheme concealed the kickback payments by entering into bogus contracts to provide a “cover story” for the doctors, chiropractors and others who received illegal payments. For example, a number of doctors entered into agreements with a Pacific Specialty Physician Management (PSPM), a company owned by Drobot, under which the doctors received as much as $100,000 per month from PSPM in return for the right to purchase their medical practices – an option that was never exercised. PSPM paid some doctors inflated prices for the right to operate their practices and collect on their insurance claims. In still other cases, Pacific Hospital entered into contracts with doctors under which the doctors were to help the hospital collect on its surgery bills to insurance companies, but the hospital’s own collection staff, rather than the doctors, actually performed the collections work. Several doctors entered into lease agreements under which PSPM or Pacific Hospital paid rent for the use of office space, but rarely used the space. And other doctors had agreements to provide consulting services to Drobot’s companies, but did not actually provide the services. Still others, including marketers who introduced doctors to Pacific Hospital, had additional agreements with Drobot’s companies.
The press release notes that three of the defendants each received $5.2 million, $1.24 million and $1.64 million in kickbacks.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.