When was the last time you were in the doctors’ lounge, at a party or perhaps just a conversing with your neighbor, when you started to feel miserable about missing out on the best investment opportunities or tax avoidance techniques? After all, what American does not want to be getting the best return on their investments and pay as few taxes as legally possible? And who doesn’t at times feel that they are paying too much in taxes and getting too small of a return on their investment?

 

We are frequently ask by clients about schemes to avoid taxes and investment opportunities that they have heard about from other doctors, friends or sometimes even other professionals such as attorneys, accountants, or other financial advisors. Many times the schemes are clearly bad ideas and in some cases are outright illegal. Sometimes it is hard for a client to know if we are just “too conservative” or are right on track. What’s a doctor to do? Next time you are considering an idea your CPA is questioning or telling you it is simply not right consider the following points:

 

 

I am amazed at the times promoters try to tell our clients that they know “secrets” that no one else knows. Not likely! If it is a tax scheme, make sure they talk to your CPA and that they provide authoritative back up to the scheme. We have learned in recent years that even having a “big” name behind the scheme won’t help. KPMG, LLP, one of the “Big Four” accounting firms, paid over 450 million dollars in penalties to hold off a government indictment over the firms sales of abusive tax shelters. Unfortunate for KPMG clients, relying on KPMG ’s advice will not excuse them.

 

 

In taxes, there are things that are black and white and there are things that are “gray”. Conservative clients stay out of the gray, while less conservative clients will venture into the “gray zone”. When deciding to go into a gray area, don’t push things to far or you may end up a test case. When the IRS decides to stop a gray area that they feel is being abused, they will obviously pick a case that they feel they can win. The more abusive the case, the more likely they will win so the more likely they will fight the taxpayer who has pushed it to the limit. Also, the further on the edge you go, the more likely you are to “red flag” your return and be audited.

  

 

 

If it doesn’t pass the smell test, don’t trust it; get a second opinion. Don’t think you can “hide” behind the advise of your advisor. In 2002, a San Diego doctor was sentenced to 33 months in prison and ordered to pay $370,000 in back taxes as a result of being convicted of tax fraud. Dr. Rick Shacket and his attorney created “sham” corporations and identities as part of the tax avoidance scheme.

 

 

Don’t be chasing yesterday’s success. This is a common error; people tend to look at who was the best advisor last year and jump on that wagon. As a result, many mutual funds and advisors are choked by their own success. Also, the highest performer in any year, is likely a top risk and will soon have a year of the worst performance! Be realistic with your self and your financial advisor. Define your expectations of returns, your willingness of   risk and a standard of performance. Than evaluate the performance on the selected standard, not against who did best in the doctors’ lounge last year!