Beware of These Financial Scams
Doctors are nearly always highly intelligent. Medical school is no joke, and it weeds out a lot of people. But doctors tend to make incomes well above the average – and despite their substantial education and expertise in medicine, doctors are not normally financial, investing or tax experts.
That makes doctors a tempting target for a variety of financial scams, shysters and two-timers. Here are some of the scams that doctors often fall for that get them into trouble.
Offshore income schemes. Yes, you can shelter assets offshore from the claims of creditors here in the United States. But you cannot shelter income from the IRS. You must pay income tax on any taxable income “from any source derived.” And that includes any assets that you’ve hidden offshore.
Beware of any schemes or plots to use wire transfers, offshore debit or credit accounts, foreign corporations or trusts, or anything else that involves you concealing earnings, dividends, interest, rent, royalties or other income from the IRS and not declaring it on your income taxes. Exceptions include income from Roth IRAs and Roth 401(k)s, which are not taxable as ordinary income provided the money distributed has been in the IRA for at least 5 years.
Personal Use of Assets in Self-Directed Retirement Accounts. There’s nothing wrong with a self-directed retirement account. That is, a retirement account specially set up so your IRA can take correct ownership of rental real estate, gold, precious metals, farms and ranches, partnerships and corporations, etc.
But you cannot hijack these accounts to benefit yourself or your family, except to provide retirement income in the manner for which these accounts were designed. For example, you can’t use your IRA to buy a vacation home and then stay in it yourself. You can’t lend money to your IRA and your IRA can’t lend money to you. Your IRA cannot pay you a salary. Your IRA cannot hire your teenage son to mow lawns, or pay a stipend to your wife or parent. If the IRS finds out you’ve been abusing the rules against self-dealing, they will disallow the entire IRA, force you to take a distribution on the entire amount, and pay taxes and penalties on everything.
Pyramid schemes. In their most basic forms, pyramid schemes (as opposed to legitimate multi-level marketing companies) are usually obvious. But even the obvious ones ensnare smart people – and master swindlers like Bernie Madoff are not obvious about it. Avoid schemes where you have to recruit new members in order to make money, or where there are large upfront investments required and little documentation or evidence of hard assets. The Securities and Exchange Commission warns: Beware of investments promising high returns and little or no risk, returns that are overly consistent, sellers with no securities licenses, investments that are unregistered, or where you have trouble receiving promised payments.
Beware of multi-level marketing schemes that don’t involve selling a real product or service. If the only thing you’re being sold or selling is “membership or participation,” be very cautious.
Avoid schemes that use these terms:
o Pure trusts
o Bearer bonds
o Admiralty trusts
o Patriot trusts
o Nevada Corporations (as an asset protection scheme when you’re not doing business in Nevada)
Avoid scams that rely on arguments that the 16th Amendment was not properly ratified or that Congress never actually authorized the Internal Revenue Code, or that the IRS was improperly constituted.
The tax courts have heard them all before, and you will be laughed out of the courtroom – possibly in handcuffs for tax evasion.
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