As April 15th bears down upon us, here is a final look at tax-related exposures common to physicians and some of the tax scams and traps all doctors need to be aware of.
Remember Who’s Ultimately Responsible
The first and most important rule to remember is that you, the taxpayer, are ultimately responsible (both civilly and criminally) for what is on your tax return and any tax avoidance or reduction strategies that you have employed. Always have a top CPA in place and take advantage of every potential strategy the law allows you to use to reduce your tax burden, but do your homework and due diligence on both the strategy and those promoting it. We’ve previously provided a summary of some of the most abusive and illegal fact patterns. These conmen usually have no oversight, no attorney-client privilege, no malpractice coverage, training, or even a basic background check. More importantly, they have very little liability at all for giving bad legal or tax advice that gets you in trouble with the IRS.
Understand That the Risk Goes Two Ways.
In some cases, you are the target of tax fraud from those who’d like to steal your identity or file a false return on your name and get a refund on your behalf. In other cases, we have previously explained how scammers lure you into paying them for planning that is abusive and fraudulent, making you a party to the fraud yourself with serious penalties including fines, interest, and even jail time.
Ask the Right Questions About Life Insurance and Captive Insurance
Many tax plans you may be considering involve the purchase of a life insurance sale, a captive insurance company, or both together (be VERY wary of this last one). We’ve provided some due diligence issues to explore with your CPAs, attorney, and financial advisors on these two issues in particular. One simple tip; if a captive is being marketed to you primarily for tax savings, the person you are dealing with is incompetent and should not be part of your team.
Look Out for This Big Red Flag for Fraud
Any planner or organization that requires a confidentiality agreement prohibiting you from disclosing to and reviewing it with your other advisors and your CPA and attorney in particular, is a huge red flag. They have a variety of reasons for this, including stories about it being proprietary, and often say, “Your lawyer and CPA are party of the system that’s out to get you and they will deny all our “facts” and the “common law” and say we are wrong”. This is usually to keep those trying to protect you from asking questions, pointing out their fraud, and killing their pay day.
Watch Out for “Affinity Fraud” and Schemes based on Politics and FEAR
Scammers have been taking advantage of strong emotions and fears of social, political, and economic instability for some time. While I agree that these issues should be part of your risk management planning, the wrong people are taking advantage of the exceptionally contentious political environment we are in right now and are targeting political conservatives in particular.
I am regularly forwarded websites and sales materials for abusive tax and trust schemes by clients who have either been directly solicited by a promoter, have seen ads online, in a newsletter or on a radio show, or perhaps worst of all, have had a friend that’s already been ripped off and is in harm’s way suggest that they too should take advantage of this “smart deal” that their planners shared with them. Here are some frivolous arguments to look out for that may save you from a long and expensive mistake:
• The U.S. government has no legal authority to tax you; FALSE
• You can opt out of the tax system by transferring your assets to our tax-free trust; FALSE
• The business and income producing assets you transferred are now owned by the trust and will no longer have to pay taxes; FALSE
• You work for the trust and also no longer have to pay income taxes; FALSE
• The Kennedys, Illuminati, Rothschilds, and similar families all have this kind of trust and this is what the “rich” do, it’s a secret we are not supposed to know or share; FALSE
Finally, if it goes in tax free, grows tax free and comes out tax free, you probably need a lawyer.