North County Doctor Convicted of Tax Evasion

An Encinitas physician and his wife have been convicted of evading hundreds of thousands of dollars worth of taxes, authorities announced Friday.

A federal grand jury this week found James Francis Murphy, 53, and his 51-year-old wife, Denine, guilty of preventing the Internal Revenue Service from assessing and collecting taxes they owed from the operation of their osteopathic medical practice in their North County hometown and in Omaha, Neb., according to the U.S. Attorney's Office in San Diego.

The couple earned as much as $1 million a year but paid almost no federal income taxes for a decade, according to evidence presented during a two- week trial held before District Judge Anthony Battaglia.

Despite repeated warnings from the IRS, the defendants filed false income tax returns for the medical practice using a bogus "trust," filed false personal income-tax returns that concealed their true income and, in certain years, simply refused to file returns at all.

When confronted by the IRS and notified that they owed substantial sums in taxes, the couple engaged in a variety of schemes to thwart the government's attempts to correctly assess and collect these taxes, prosecutors told the jury.

The schemes included: falsely claiming that they were not citizens of the United States; claiming that federal tax laws did not apply to them; presenting fictitious documents as payment on their tax obligations; and 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 $1 million in refunds.

They even claimed that then-Secretary of the Treasury Henry Paulson was their "fiduciary" and was responsible for paying their taxes, according to court documents.

The defendants were ordered to appear sentencing on Sept. 12.

—City News Service