Asset protection issues in the news: Part four

A variety of legal issues in the news and current events can adversely affect physicians. We examine two specific, time sensitive issues every doctor should be aware of including tax fraud targeting doctors selling their practices and a massive change in firearms law that affects millions of American gun owners.

Medical practice sales spur tax fraud targeting doctors

The continuing wave of medical practice sales and acquisitions has many physicians looking for solutions to reduce capital gains taxes. We’ve repeatedly advised you about various tax scams that target physicians like clockwork during the 4th quarter and again immediately before tax day. Now promoters have a year-round target, medial practice sales. While there are a few legitimate methods to defer capital gains tax exposure on the sale of a medical practice or any other business, none of the legitimate ones substantially reduce the tax or eliminate it altogether AND also allow you to keep the proceeds to spend as you like. This creates a large number of sellers looking for a solution that does not exist who are open to suggestions that promise the answer they are looking for.

One such scheme to be aware of is the promise that a trust with some combination of the following legitimate descriptors, “Non-Grantor, Irrevocable, Complex, Discretionary Spendthrift” can magically reduce or eliminate your capital gains tax obligations while also leaving the sales proceeds liquid and available for your use. As with most scams, there is a kernel of truth in that the series of legal terms of art I strung together above are legitimate legal terms that describe specific valid attributes of various kinds of trusts. Unfortunately, that combination isn’t any more magical than, “Acute, Internal, Laparoscopic, Vascular, Localized, Extraction” would be in a medical context.

The American College of Trusts and Estate Counsel or ACTEC, a scholarly legal organization recently addressed this issue an article that picked apart some of the specific failures in the construction of these trusts. My friend, attorney Jay Adkisson, whose work you may have seen in Forbes, was more direct about the problem in his article titled, “The Complex Trust Is Simply the Criminal Tax Evasion Device Known As The Pure Trust Repackaged”.

The scammer who sells complex trusts will show their marks a letter from the IRS which states that such a trust pays no income taxes. Using that letter, they then tell their marks that if they put all their assets and divert their income into the Complex Trust that it will then be forever free of tax. What the scammers don't tell their marks is that the IRS letter actually states that the trust itself does not pay tax because the trust is treated as a grantor trust which means that all the taxable income of the trust passes through to some individually (known as the "tax grantor") who records it on their own personal tax returns as if the trust never existed.

Tread lightly, get advice from your own CPA and tax counsel and trust their feedback over your desire for it to be true.

Massive gun law change goes into effect May 31

Firearms ownership is at all time high and that includes many physicians. As many as 40 million U.S. gun owners may be affected by a massive change to firearms law that has been alarmingly underreported and which goes into effect at midnight, May 31, 2023. Those who have purchased a “pistol” with a barrel of less than 16 inches in either rifle or handgun caliber that also has an “arm- brace“ on it must now register that firearm with the ATF (here are their own step by step instructions) as a more heavily controlled “short barreled rifle”.

Failure to comply is punishable by up to ten years in prison and fine of up to $10K. You can register each affected firearm online with the ATF and will need to submit pictures and fingerprints (within 10 days) and the usual $200 license fee has been waived for those complying with the new law by the required date. If you don’t want to comply and register, the ATF provides several options:

• Destroy or surrender the gun
• Remove the arm brace permanently
• Add a 16 inch or greater barrel to the gun making it a rifle

We will continue to examine the real world examples of risks we have discussed in abstract detail.

Attorney Ike Devji has 20 years of legal experience focused exclusively on asset protection, risk management and wealth preservation. He helps protect a national client base with more than $6 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians, a Physicians Practice contributor for over a decade and a frequent national CME presenter. Learn more at www.ProAssetProtection.com.