September is the start of the annual tax fraud sales season. As doctors are aggressively pursued with a variety of tax savings plans that make big promises, knowing what you are buying and who you are dealing with is vital.
Many of you will be solicited to engage in some kind of income tax avoidance planning this fall, and you certainly should take every legal step allowable to use the tax code to your advantage. That said, doctors have always been great target markets for both good and bad tax plan sales due to their higher than average incomes and perceived tax sensitivity. Promoters are aware of both and typically appeal to and encourage that psychology and apply sales pressure at the end of the year when they know you are busy with increased patient volume, family, and holidays. Our next several discussions will focus on tax planning issues physicians must be informed about to avoid making a move that may not produce the promised tax savings and may actually increase what you owe and create both civil and criminal liability.
Rule one: YOU are always legally responsible
Never forget that as the taxpayer, you are ultimately both civilly and criminally liable for the information provided on your tax return and any tax avoidance or reduction strategies that you have employed regardless of who recommended it. It’s vital that you have a top CPA or tax lawyer in place to review and approve the plan and that you perform some due diligence on both the strategy itself and those promoting it.
While there certainly are cases where licensed professionals have made mistakes or sold planning that was just plain fraud to begin with, working with such individuals does provide some redress and professional accountability, like malpractice insurance. Some of the worst scams we see come from unlicensed promoters (i.e. not a licensed CPA, lawyer, financial advisor, etc.). These promoters usually have no oversight, no attorney-client privilege, no malpractice coverage, little training beyond sales, and haven’t even been through a basic background check. As such, they have very little professional liability for any issues that they create for you with the I.R.S.
Rule two: Be wary of “secrets” and those who want you to keep them
Very little is proprietary (new, unique, secret) in the world of tax planning; it’s all based on the black letter law of the tax code and how skillfully that knowledge is applied. Anyone that requires you to sign a confidentiality agreement prohibiting you from disclosing and reviewing their “magic beans” with your other advisors and your CPA and attorney in particular should be a big red flag. In addition to these false claims of needing to protect their intellectual property, they often will say that your other advisors are “too mainstream” to understand their unique approach and the “secrets of the super-rich and connected” that they are sharing with you.
Rule three: Beware of those talking politics and religion
As your parents likely told you, some topics are to be avoided in polite company and in professional settings; tax planning is certainly one of them. In our politically contentious times, tax fraud promoters are having great success capitalizing on the fear and biases of the American consumer and political conservatives by exploiting the very real risks of social, political, and economic instability.
Any organization that suggests any of the following should be summarily disqualified from being part of your team, even if you have a friend who did the same planning and made the introduction. That’s what we refer to as “affinity fraud,” being introduced by another innocent and well-meaning victim.
Specific lies to watch for
- The U.S. government lacks legal authority to tax you.
- You can “opt-out” of the tax system by transferring your assets to our tax-free trust and will no longer have to pay taxes.
- You work for the trust and also no longer have to pay personal income taxes.
- Rich politicians, billionaires, and CEOs all have this kind of planning; it’s a secret we are not supposed to know or share (see rule two).
- It goes in tax free, grows tax free, and comes out tax free (you rarely get all three, legally).
Our next discussions will provide more specifics on tax scams and planning issues to avoid,including the I.R.S.’s own current fraud list.
Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.