Tax filing day is just weeks away. Here’s a final look at the recurring mistakes, scams, and misinformation every doctor must be aware of.
As your review this list, keep the phrase “caveat emptor” in mind. While I encourage getting help from top tax professionals to pay the smallest amount the law allows, doing appropriate due diligence on the planner and their plans is ultimately always the legal and financial liability of you, the taxpayer. Relying on the advice of others is not an effective defense to tax fraud. Be especially vigilant in cases where a third-party “promoter” that is not part of your long-term team comes up with a too good to be true new plan that will save you a bundle; it actually may be, too good to be true. Always have your own team review the basics and give you a second opinion.
Some of these individuals have extensive sales training but often do not have professional licensing such as a CPA, attorney, certified financial planner (CFP), or other advisory credential that would subject them to professional licensing standards, malpractice liability (and hopefully malpractice insurance), education requirements, or even a basic background check. If they do have formal credentials, make sure you know exactly what they are and consider how they apply to your issue.
For instance, a miraculous tax plan being promoted by a non-CPA salesperson with an “opinion letter” about its favorable tax status by a retired divorce lawyer in another state (true story) may not be a good bet and should fail a common sense test no matter how much you want to believe the miraculous story they tell. Greed kills.
There are some common red flags to watch out for, not the least of which is any plan that requires you to exclude your advisory team or reveal your plan to them for review under the guise of a confidentiality or non-disclosure agreement. Part of the sales model of many con men with abusive plans is to intentionally isolate you from your advisors, especially those who may question a strategy or point out some obvious legal flaw in it. While sophistication levels admittedly vary between advisors and the markets they serve, any plan that involves concepts that no one else has ever achieved or seen and that they can’t explain to other advisors based on specifics should be very carefully examined.
Some specific bad arguments are common to many of the most abusive plans and prey on a combination of affinity fraud (two or more people, doing something stupid and illegal, is still stupid and illegal) and the fear and perceived social and political instability we are currently experiencing. Be wary of plans marketed this way and in particular those promoted by internet, newsletters, and talk radio hucksters that don’t meet any of the due diligence standards I have laid out above or that involve any version of the following instantly disqualifying lies:
• The U.S. government has no legal authority to tax you.
• You can be a “sovereign citizen.”
• You can legally avoid tax system by transferring your assets to our tax-free trust.|
• The income producing business assets you transferred to the trust will no longer have to pay taxes.
• Funds go in tax free, grow tax free, and comes out tax free too.
• You work for the trust and also no longer have to pay income taxes.
• The (insert name of rich family, celebrity, government official, TV preacher, etc.) all have this kind of special trust.
• This is a secret of the rich that “ordinary people” including your experienced advisors wouldn’t understand.
Some tax scams target you and others make you a co-conspirator in tax fraud against the government. The most common examples of both the IRS is looking for are consolidated on the so-called annual dirty dozen list that I’ve summarized here previously and that I strongly suggest you review. We’ve also covered one specific risk in significant detail, the issue of abusive captive insurance companies and the promoter audits many of their owners and managers now face.
Consider your own structure and the risks and expenses involved through that lens carefully. It is typically better for you to discover any issue and take corrective action before any third party does.