When most physicians and high‑income professionals think about IRS risk, they picture underreported W‑2 wages or missed 1099s. Recent news out of an Ohio federal court is a reminder that some of the biggest exposures come from complex offshore structures, especially when they touch compensation and practice income.
According to a settlement filed in Ohio U.S. v. Alexander et al., case number 1:24-cv-00192, in the U.S. District Court for the Southern District of Ohio, a retired plastic surgeon agreed to pay $7.7 million to resolve a long‑running dispute with the federal government over an alleged offshore employee leasing scheme. The case illustrates how the IRS views these arrangements and why “creative” cross‑border planning can backfire years after a doctor hangs up the white coat.
While the detailed filings are technical, the broad outline is straightforward. The government alleged that the surgeon used an offshore employee leasing arrangement to route income and compensation through foreign entities in a way that reduced or deferred U.S. tax.
Typically, these schemes might involve:
· A foreign “leasing” or management company that purports to employ the physician.
· The U.S. practice or surgery center paying fees offshore instead of wages or distributions directly to the doctor.
· Claims that income is properly taxed in a low‑tax jurisdiction or that different rules apply because of the foreign structure.
The IRS and Department of Justice challenged that approach, taking the position that the structure improperly shifted U.S.‑source income offshore and that the underlying U.S. tax remained due. Rather than continue litigating, the retired surgeon agreed to a multi‑million‑dollar settlement that resolves the government’s civil claims.
Many clients look at the $7.7 million figure and assume the underlying income must have been astronomical. In reality, large tax settlements like this often reflect years of back tax, accrued interest, and civil penalties. When income is routed offshore and goes unreported or underreported over a sustained period, the compounding effect is dramatic.
Key drivers can include:
· Additional income tax from disallowed deductions or recharacterized payments.
· Accuracy‑related penalties, which can be as high as 20% or more of the underpayment.
· Possible penalties relating to foreign information returns if foreign entities or accounts were not properly disclosed.
By the time the government has completed its examination, coordinated with DOJ, and filed a case in federal court, the taxpayer is often facing a number that looks more like a business acquisition than a tax bill.
Why this matters even if you are “done” practicing
One striking aspect of this case is that the taxpayer is a retired surgeon. For many professionals, there is a false sense of security that once the practice is sold or closed, the exposure somehow “expires.” Unfortunately, the IRS’s statute of limitations and collection powers do not operate on a retirement timetable.
If offshore structures were used during a client’s active years, those arrangements can be examined and challenged long after the operating business has changed hands. The result can be:
· Large, unexpected liabilities in retirement.
· Disputes over how much of the sale proceeds or nest egg are reachable by the government.
· Stressful litigation at a time when clients expected their financial lives to be simpler, not more complex.
Practical lessons for high‑income professionals
For physicians, business owners, and executives with cross‑border exposure, this case offers several concrete lessons:
· Be skeptical of offshore “employment” or “leasing” solutions. If a structure exists primarily to reduce U.S. tax on services that are clearly performed for U.S. patients or customers, expect the IRS to scrutinize it.
· Assume the government will look through form to substance. Labels like “management fees” or “leasing charges” will not carry the day if the economic reality is that you are earning U.S.‑source income.
· Clean‑up is almost always cheaper than enforcement. Where past offshore structures may not align with current law or guidance, it is often far better to explore voluntary disclosure or targeted corrective filings than to wait for an IRS investigation that can end in a high‑profile lawsuit and eight‑figure‑style outcomes.
· Retirement is not a shield. If there are unresolved issues from earlier years, address them now, before the government files its own complaint in federal court.
At Marini & Associates PA, we regularly work with physicians and other high‑income professionals who have legacy offshore structures, foreign entities, or international compensation arrangements. Our role is to:
· Review existing structures for compliance and economic substance.
· Identify potential reporting gaps, including foreign information returns.
· Develop practical strategies to bring clients back into compliance while managing risk and cost.
The retired surgeon’s $7.7 million settlement is one more reminder that offshore planning must be done carefully and that ignoring issues rarely makes them go away. If you or your clients have questions about an existing offshore arrangement, it is better to ask those questions now than read about a similar case in the news later.
Do You Have A Non-Compliant Offshore Account?
Sources:
2. https://www.justice.gov/opa/press-release/file/1583426/dl
3. https://casetext.com/case/alexander-v-us-60
4. https://law.justia.com/cases/federal/district-courts/ohio/ohsdce/
5. https://www.law360.com/cases/64503d7cd272ac02fbe840fa/dockets
6. https://cseinstitute.org/update-alexander-brothers-found-guilty-on-all-charges/
7. https://www.facebook.com/FOX5NY/posts/the-verdict-came-after-11-women-testified-in-manhattan-federal-court-they-were-s/1466610174828263/
8. https://aglaw.psu.edu/wp-content/uploads/2023/12/Ohio-v.-EPA-Order-8.11.21.pdf
9. https://www.ohsd.uscourts.gov
10. https://case-law.vlex.com/vid/alexander-v-us-no-885744145
11. https://www.justice.gov/usao-sdny/pr/alon-alexander-oren-alexander-and-tal-alexander-charged-manhattan-federal-court-sex
12. https://www.scribd.com/document/803642724/U-S-v-Alexander-Et-Al-Superseding-Indictment
13. https://www.bbc.com/news/articles/c6271ngl014o
14. https://case-law.vlex.com/vid/united-states-v-alexander-1094803244
15. https://www.casemine.com/judgement/us/68539eaf99219666d9b24b20
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19. https://www.reddit.com/r/AusFinance/comments/1tmtnn3/how_do_you_define_the_rich_that_we_should_be/
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23. https://www.govinfo.gov/content/pkg/CHRG-108shrg92143/pdf/CHRG-108shrg92143.pdf
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