Los Gatos Businessman Sentenced to Prison for Income Tax Evasion

A Los Gatos business owner was sentenced this month to two years in state prison for violating the terms of his probation by failing to file state income tax returns for 2000 through 2006 as ordered by the court and failing to file subsequent tax returns for 2007 through 2011, the Franchise Tax Board announced in a press release.

Kurt Charles Scanlin, 54, pleaded guilty in May 2008 to 22 counts including five felony counts of failure to file state income tax returns.

He was originally sentenced to one year of electronic monitoring, five years of formal probation, and ordered to file the delinquent tax returns for 2000 through 2006 and pay restitution of $89,484 to the FTB and $157,650 to the State Board of Equalization, according to the release.

In addition to failing to file the delinquent income tax returns, Scanlin failed to pay the restitution in full, the release stated. He still owes $76,910 to FTB and $135,497 to BOE, and can be subject to three years of supervised parole. Scanlin has been in custody in the Santa Clara County main jail since his September 2012 probation was revoked.

Scanlin, sentenced Jan. 11, owned two businesses which sold custom printed business forms, label products, and artwork—System Form and Label Products of San Jose and California View Fine Arts of Los Gatos.

Santa Clara Superior Court Judge Arthur Bocanegra handed down the sentence at the end of Scanlin's probation hearing in Department 29 of the Santa Clara Hall of Justice. Santa Clara County Deputy District Attorney Daniel Carr prosecuted the case.

According to authorities, Scanlin failed to report sales of more than $1.2 million during Jan. 1, 2000 through September 20, 2002. In July 2003, Scanlin’s seller’s permit was revoked by the BOE for failure to file sales tax returns. In addition, he failed to file state income tax returns on the more than $870,000 in gross income he earned during 2000 – 2004.

As part of a plea agreement, Scanlin was supposed to pay restitution to the BOE of $157,650, and $89,484 to the FTB.

The FTB said Scanlin operated his business through a trust naming himself as trustee. He made all the business decisions and controlled the business. The courts routinely strike down the argument that trusts shield income from taxation. Legitimate trusts do not transform a business’ expenses into deductible expenses for tax avoidance, according to the FTB.

Anyone who has knowledge of tax fraud may call the FTB informant hotline at 800-540-3453.