Phoenixville resident arrested for alleged tax fraud for Internet prescription sales

PHILADELPHIA — A Phoenixville doctor who owns an Upper Merion medical practice has been indicted in U.S. District Court for allegedly violating tax laws, including failing to file or filing false individual and corporate tax returns.

Elias Karkalas, who according to court documents has owned and operated Upper Merion Family Practice P.C. since at least 1994, was indicted by a federal grand jury and arrested Wednesday by the U.S. Attorney’s Office on charges of corrupt or forcible interference with administration of Internal Revenue Service laws, filing false tax returns and failure to file tax returns in connection with alleged incidents that occurred between 2005 and 2011.

Karkalas, 50, could not be reached for comment about the allegations. He remains in custody pending a detention hearing in federal court on Monday, according to Patty Hartman, a spokeswoman for the U.S. Attorney’s Office in Philadelphia.

According to the indictment, which was unsealed on Thursday, in 2005, Karkalas became a participating physician with an Internet pharmacy organization that permitted individuals who were seeking to purchase prescription drugs to acquire a prescription from a doctor. The company, which was not identified in court papers, paid physicians a fee to write prescriptions for individuals to purchase the drugs through the company’s affiliated websites.


“In most cases, the participating physician wrote prescriptions for individuals who they did not examine, and whom they never met,” U.S. Attorney Zane David Memeger alleged in the indictment.

As a participating physician, Karkalas was able to access a company website and review prescriptions available for his authorization, according to court documents. Between 2005 and 2011, Karkalas authorized more than 750,000 prescriptions through the Internet pharmacy organization and other Internet pharmacies, authorities alleged in the indictment.

During the 2005 through 2010 tax years, Karkalas allegedly received wire payments, based on the number of prescriptions issued, totaling about $2.5 million, “prescription drug income” that authorities alleged Karkalas failed to report on his corporate and individual tax returns, according to the indictment.

When he became a participating physician with the Internet pharmacy company, Karkalas directed the company to deposit his prescription drug income into his personal bank account and “did not inform his accountant or bookkeeper of this income,” the indictment alleged.

Authorities alleged that between 2005 and 2010, Karkalas maintained two sets of records, one for his business and another of his prescription drug income, “which he did not disclose the existence of to the accountant or bookkeepers.” Karkalas, the indictment alleged, repeatedly provided false information to his accountant and bookkeepers.

Karkalas, the indictment alleged, “misled” his accountants and bookkeepers about the true amount of his prescription drug income and caused an accountant to file tax documents based on false information Karkalas provided. For example, in 2006, Karkalas earned about $109,000 in prescription drug income but “falsely told his accountant that he had earned only $70,000 in prescription drug income in 2006,” according to the indictment.

Between 2005 and 2013, the IRS regularly engaged in correspondence with Karkalas, notifying him of his unfiled returns and outstanding taxes due, according to the indictment.

“Despite being repeatedly notified by the IRS of these duties, in this eight year period the defendant filed six false returns, of which five were late-filed, late-filed two other returns, failed to file two tax returns, and never once timely paid any taxes due for tax years 2005 through 2010,” Memeger alleged in the indictment.

If convicted of the charges, Karkalas faces a maximum possible sentence of 15 years in prison, a fine of up to $1.3 million and restitution to the IRS.

The case was investigated by IRS Criminal Investigations. The case is being prosecuted by Assistant U.S. Attorney Floyd J. Miller and Trial Attorney Dennis R. Kihm, with the U.S. Department of Justice’s Tax Division.

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