Important Lesson for Doctors in #PanamaPapers Fiasco

April 5, 2016
Ike Devji, JD

Mixing secrecy, bad tax advice, and the wrong jurisdictions may prove financially fatal for American doctors who misuse offshore tools for tax evasion.

I was hoping that my last column would have been a sufficient pre-April 15 commentary on doctors and tax fraud; I was wrong. In that column I covered a variety of issues including who is responsible for physicians' use of abusive structures - even if a law firm, bank, CPA, or promoter suggested the plan - provided some basic red flags for fraud, and outlined some of the common frivolous arguments that scammers use to sell these plans.

If you've seen the news in the last 48 hours you've probably seen a variety of accounts sensationalizing the leak of 11 million documents (yes you read that right) from Panamanian law firm Mossack Fonseca that is alleged to be part of an international tax evasion and money laundering ring tied to some of the richest and most powerful people in the world, including many heads of state.

The panic and pandemonium that must be privately taking place inside the firm, with its clients and every individual or institution that thinks it might be named in those documents (in any kind of transaction), must be epic. The attention this is getting is impressive: On the first day, WikiLeaks asked for votes on Twitter whether they should release all 11 million documents to the public or just the media. Since the leak, #PanamaPapers has generated more than 800,000 Tweets around the globe.

While those numbers make great headlines, what is likely of greater interest to our readers is many U.S. physicians have been solicited and regularly buy the exact same kind of clumsy and primitive tax fraud. In most cases the scheme is no more complex than having an illegally unreported offshore bank accountowned by some kind of offshore entity to hide it's true ownership like a trust or LLC, or if you really want to get audited, an IBC (international business corporation) or sham offshore charitable foundation, both of which are regular guests on the IRS dirty dozen list of tax scams.

At the time of this article, no U.S. clients or associates had been specifically named, but I'm guessing it will happen. My friend and fellow asset protection attorney Jay Adkisson pointed out that the Panamanian law firm at the center of the controversy has a branch in Las Vegas, Nev., that operates under the name M.F. Company Services in his Forbes column published last Sunday. He also pointed out that the Vegas branch of Mossack Fonseca, M.F. Company Services, is currently fighting a subpoena from the U.S. District Court for the District of Nevada on at least 123of the corporations it set up.

These abusive schemes (as opposed to the legal, ethical, and fully reported use of similar-sounding tools) are promoted by a variety of unethical and criminal actors including banks that want fees and deposits; tax planners charging big fees for their "secret" plans; attorneys who set up the abusive structures and offer specific advice on how to evade taxes; and reporting requirements that mask both the ownership of funds and the source of the funds - a key element in running criminal enterprises. It's also used for plain-old tax evasion by U.S. citizens and taxpayers looking to secretly receive income from sources either legal or illegal and for hiding assets from spouses and preexisting creditors.

As a result of this abuse, scrutiny of any such activities, legal or not, in this jurisdiction in particular will likely be higher than usual for some time as the story continues to unfold. Remember, we are seeing just the tip of the iceberg as only a few media outlets have the documents, they're still being reviewed and the biggest names are being publicized first. If you have a fact pattern that looks anything like what I've outlined above, get some immediate help from an experienced tax lawyer and find something to bite down on, this may hurt. We will follow the story as it unfolds.