A Mercer Island resident was sentenced by the United States District Court of Western Washington to five years probation and must pay restitution of $154,309 on Nov. 30 after being found guilty of tax fraud.

David Murphy, who owned a credit consulting business NW Credit Consultants, Inc. in King County, was charged with four counts of filing a false tax return in January 2012. Murphy pled guilty to one of those charges filed by the U.S. Attorney’s Office.

The charges stem from returns filed in 2006 for the years 2001-2004 when Murphy falsified tax documents for the credit consulting business. According to the plea agreement obtained from the Internal Revenue Service, Murphy approved and signed the company’s 2004 tax return which included inflated advertising expenses for $188,703, much higher than the actual costs.

Also in 2006, Murphy approved and filed the businesses tax returns for 2001, 2002 and 2003, all of which included false information the IRS found.

In 2009, Murphy filed an amended return for those four years. The amended returns showed much different numbers in relation to the advertising expenses compared to the original returns. According to reports from the IRS, the original return filed for 2002, stated the company’s expenses for advertising were $211,622, but the amended returned showed only a total of $30,967. In 2003, the original filing included $210,637 for advertising, while the amended return had $23,265 for the same expenses. The original 2004 return posted $188,703 for those expenses, but the amended return showed only $29,386.

In total, the company owed the IRS $5,673 for 2002, $12,530 for 2003 and $2,048 for 2004 compared to the originally reported $34 for all three years.

“The United States (District Court) believes that the amount of tax reported as owed on the amended returns are also significantly understated, and that the tax owed for each of those years is higher than reported by Mr. Murphy on the amended returns,” said the government’s sentencing memorandum filed on Nov. 26, 2012. Based on that information the estimated tax loss for those years was calculated by the IRS to be $154,309.

“For years, Mr. Murphy failed to file any tax returns for his business,” said the sentencing memo. “Mr. Murphy, as sole owner, and principal operator of his business, certainly knew that the tax returns he finally filed in 2006, contained materially false information, yet he repeatedly stood by those clearly fraudulent returns. Subsequently, he filed amended returns that also understated the taxes he owed.”

The returns were all prepared by Albert Decker, who owned Accountable Business Services in Arizona. Decker pled guilty to charges in Arizona and served a jail sentence and probation. Decker’s guilty plea was unrelated to the charges filed against Murphy.

As part of the plea agreement with Murphy, the U.S. Attorney’s Office agreed not to pursue any other offenses by Murphy related to these charges.

In the sentencing motion the U.S. Attorney’s Office said they recommended a term of incarceration followed by home detention, and that he should be required to pay restitution in the amount of owed taxes.

While the court sentenced him to five years of probation, for seven months Murphy will be monitored by a GPS device, and can only maintain one personal checking account and one business checking account in his name.