Anderson, who formed Mid-Atlantic Telecom when the industry was being deregulated in the 1980s, was accused of two counts of tax evasion and one count of failing to report $365 million in personal income in 1998 and 1999. He pleaded guilty to the charges in US District Court for the District of Columbia in September 2006.

Anderson was arrested in February 2005 at Washington Dulles airport while stepping off of a plane from London after an investigation unraveled a complex set of offshore entities, banks accounts and transactions designed to conceal income earned from his interest in companies he owned.

According to the Department of Justice, in October 1992, Anderson formed an offshore corporation named Gold & Appel Transfer in the British Virgin Islands (BVI) and hired a trust company to serve as Gold & Appel’s registered agent and sole director. Gold & Appel was said to be owned by another BVI company, Icomnet, previously formed by Anderson.

Prosecutors believe that Anderson granted himself an exclusive option to purchase Gold & Appel shares for a nominal sum, insuring that no one else could own these remaining shares. By forming the corporations in that manner, neither the option nor Anderson’s name was recorded in the BVI’s public records. Prosecutors said that as a result, Anderson hid his ownership of the corporations that held these assets, but was still able to maintain complete control.

After other merger activity with telecommunications companies he owned, Anderson was said to have further obscured his ownership of Gold & Appel, by using an alias and forming another offshore corporation - Iceberg Transport, S.A. - in Panama. To disguise his ownership of this company, the DoJ said that Iceberg was created as a “bearer share” company, meaning that, unlike US corporations, there was no central registry information on the company. Therefore, whoever had physical control over the actual share certificates was considered the owner.

According to prosecutors, between October 1992 and July 1996 Anderson transferred his ownership interests in three telecommunications companies - Mid-Atlantic Telecom, Esprit Telecom and Telco Communications Group - to Gold & Appel and Iceberg. In this way, when appreciated stock was sold, or other taxable events occurred, Gold & Appel and Iceberg not Anderson would appear to be the taxpayer.

After these transfers were made, each of these telecommunication corporations became dramatically more valuable. Between 1995 and 1999, Anderson used the assets of Gold & Appel and Iceberg, which included the profits realized from these three telecommunication corporations, to invest in other business ventures. This generated more than $450 million in earnings for Gold & Appel and Iceberg during this period.

Anderson was also charged with evading taxes in the District of Columbia and had claimed residency in the state of Florida, which does not levy income tax.

Somewhat controversially however, US District Judge Paul L. Friedman ruled that Anderson will not have to make restitution to the Internal Revenue Service of up to $140 million in unpaid tax because of a "poorly drafted" plea agreement. But Anderson was ordered by Friedman to pay $22 million in unpaid tax back the government of the District of Columbia, although this was only about half of the amount he actually owed.

Before the trial, Anderson had argued that the millions in assets that the government claimed belonged to him were actually in the ownership of the Smaller World Foundation, a charity he set up to promote causes such as world peace, family planning and space exploration. He has since declared personal bankruptcy and the government has been unable to seize any assets to repay the taxes Anderson evaded.