Doctor Sentenced To Four Years For Tax Fraud

SAN DIEGO – Judge Anthony J. Battaglia today sentenced Dr. James Francis Murphy to 48 months in custody for his years-long efforts to obstruct the IRS from assessing and collecting the hundreds of thousands of dollars of income taxes he owed from the operation of his medical practices in Encinitas, California, and Omaha, Nebraska. Dr. Murphy was also ordered to pay nearly half a million dollars in restitution to the Internal Revenue Service.

His wife, Denine Christine Murphy, a co-defendant in the case, was sentenced to 12 months of house arrest and ordered to pay restitution of $147,528.

Evidence presented at trial showed that despite earning as much as $1 million a year from their osteopathic medical practice, Dr. and Mrs. Murphy paid almost no federal income taxes for a decade. Instead of accurately declaring their income and paying taxes lawfully owed to the United States, and despite repeated warnings from the IRS, the Murphys filed false income tax returns for the medical practice using a bogus “trust,” and filed false personal income tax returns concealing their true income. In addition, in some years the Murphys simply refused to file required tax returns at all. Incredibly, for several years their fraudulent tax returns triggered the Earned Income Credit, and resulted in their receiving tax refunds from the IRS.

As presented at trial, when confronted by the IRS and notified that they owed substantial sums in taxes, the Murphys engaged in a variety of schemes to prevent the United States from correctly assessing and collecting these taxes. These schemes included: (1) falsely claiming that they were not citizens of the United States; (2) frivolously claiming that the federal tax laws did not apply to them; (3) fraudulently presenting fictitious documents such as “Private Offset Discharge and Indemnity Bonds” and “Bonded Promissory Notes,” purportedly worth hundreds of millions of dollars, as payment on their tax obligations; and (4) fraudulently claiming that the hundreds of thousands of dollars they paid to credit card companies, utilities, and other vendors were actually withholdings of federal income taxes, thereby entitling them to over a million dollars in refunds from the IRS. The defendants even claimed that the then-Secretary of the Treasury, Henry Paulson, was their “fiduciary,” who was responsible for paying their taxes.

The defendants were found guilty by a jury on June 20, 2014 after a two-week jury trial held before Judge Battaglia. At today’s sentencing, Judge Battaglia described Dr. Murphy’s conduct as “a calculated, deliberate, and orchestrated series of efforts…to avoid tax liability.” The court noted that Dr. Murphy’s crimes represented “a pretty offensive set of circumstances.” Judge Battaglia decried the “nature of the arrogance, [in] how these mechanisms were utilized” to carry out what the court characterized as an “all out scheme to defraud the government.”

U.S. Attorney Laura E. Duffy commented, “The Murphys went to outrageous lengths to deprive the U.S. taxpayers of their fair share of the tax burden. It is especially egregious that they exploited the Earned Income Tax Credit, a credit intended to benefit low-income working families, to collect refunds they were not entitled to receive. Taxpayers should be aware that schemes to avoid paying taxes will result in serious consequences – including significant jail time – in addition to having to pay back taxes with interest.”

“As we approach tax filing season, it’s more important than ever that the American people feel confident that everyone is playing by the rules and paying the taxes they owe,” said Erick Martinez, Special Agent in Charge of IRS Criminal Investigation. “No matter what the source of income, all income is taxable. The prosecution of individuals who intentionally conceal income and evade taxes is a vital element of the IRS’ enforcement strategy.”

Rod Ammari, Special Agent in Charge of the Treasury Inspector General for Tax Administration stated, “James and Christine Murphy’s attempts to corruptly impede tax administration by submitting fraudulent documents to the IRS will not be tolerated. These schemes that are used to avoid paying their fair share affects all hard working taxpayers, and Treasury Inspector General for Tax Administration is committed to investigating these criminal schemes.”

Dr. Murphy is required to surrender to begin his custodial term by February 24, 2015.

DEFENDANT		Case Number: 12CR2497-AJB
Dr. James Francis Murphy	Age: 53	Encinitas, California
Denine Christine Murphy	Age: 52	Encinitas, California
CHARGES
Count 1: Corrupt interference with the administration of the internal revenue laws, in violation of 26 U.S.C. § 7212(a).  Both defendants.  Maximum penalties – 3 years’ custody, $250,000 fine. Counts 2-5: Presenting fictitious financial obligations, in violation of 18 U.S.C. § 514.  Defendant Dr. James Francis Murphy.  Maximum penalties – 10 years’ custody and $250,000 fine (per count). Counts 6-8: False claims to the United States, in violation of 18 U.S.C. § 287.  Both defendants.  Maximum penalties – 5 years’ custody and $250,000 fine (per count).
INVESTIGATING AGENCIES
Internal Revenue Service, Criminal Investigation Treasury Inspector General for Tax Administration