David Burbach was a successful pool designer in the upper Midwest. Worried about the liabilities arising from his thriving business, he somehow got hooked up with a Florida “asset protection specialist” named George Eldridge, since deceased. Eldridge was based in Mango, Florida, an eastern suburb of Tampa.
Eldridge was not an attorney or CPA, but merely an “Enrolled Agent” which meant that he had passed an exam that let him represent taxpayers before the IRS. At some point, Eldridge declared himself to be an asset protection guru, and started offering all sorts of legal and tax planning to folks like Burbach. To attract clients, Eldridge offered a seminar for $1,200 whereby he released his newfound wisdom to the world. Burbach attended one of these seminars, which included the following subtle and measured advice in Eldridge’s handouts:
- “You Must Apply Rule of Law on a Daily Basis! After all, you are not working for the IRS, or the 445 legal thieves in Washington, DC. They will legally take your money. They will then redistribute it to those individuals who will not work as you have worked. Will you use RULE OF LAW and stop the 445 legal thieves?”
- “Are you a Beleaguered American Taxpayer? Is the Grizzly Bear the IRS feasting sumptuously in [sic] your money that you have earned by work? * * * Are you ever going to use Rule of Law to stop paying maximum taxes to the Grizzly Bear? Do you have the heart to use Rule of Law through me? * * * What is your decision?”
Soon, Burbach and Eldridge entered into an agreement whereby Eldridge would receive 39% of Burbach’s estimated tax liability for tax year 2000 (which Eldridge put at $400,000) plus a one-time review fee of $12,000.
Eldridge then set out creating a bunch of stuff for Burbach that can only be described as “junk planning” having no legitimate basis in tax or other law, mostly a bunch of corporations (typically the worst form of entity for asset protection since the shares are available to creditors). Additionally, Eldridge also created what he called a “pension plan” for Burbach which was little more than a naked tax dodge.
Despite Eldridge’s claims to be a tax and asset protection hotshot, he never could seem to do much more than set up corporations for Burbach and cash the latter’s checks. In fact, Eldridge missed filing literally whole years of tax returns for the various entities that he had set up for Burbach. Despairing of Eldridge’s incompetency, Burbach moved his business to a firm called R&D Strategic Tax Planning, Inc., which had been set up by a couple of Eldridge’s disgruntled employees (including one named DeCotret who will be mentioned later) who had finally walked out the door.
But Burbach quickly figured out that R&D and DeCotret didn’t have much of an idea what they were doing either, and so by 2008 had started preparing all the necessary tax returns himself. It was at this time that the IRS came knocking and Burbach finally realized that Eldridge’s was little more than a two-bit tax huckster and his work was indeed just useless (if not quite expensive and ultimately harmful) junk.
After the IRS showed up, Burbach finally took his “pension plan” to a real employee-benefits lawyers named Timothy Stewart, who advised Burbach that the plan didn’t work. Stewart convinced Burbach to do the smart thing and seek a deal with the IRS through the latter’s Voluntary Correction Program (VCP). As a result of Stewart’s doings, Burbach’s pension plan was finally brought into compliance in 2010.
But the pension plan was only one of the problems created by Eldridge for Burbach, and for Burbach for himself by relying upon a nut like Eldridge. Long story short, Burbach ended up in the U.S. Tax Court trying to defend almost everything that Eldridge had done for him, and the Tax Court repeated slammed Burbach for Eldridge’s planning.
In his defense, Burbach claimed that he justifiably relied on the tax opinions and advice of Eldridge (and to a less extent DeCotret) in doing all this planning, and thus he should not face penalties. The Tax Court was much less than impressed and gave this argument a thumbs-down:
Nothing in the record convinces us that Eldridge and DeCotret were competent professionals with sufficient expertise to justify reliance. Burbach’s testimony is laced with references to Eldridge’s status as an enrolled agent, but the Commissioner correctly points out that Burbach never verified Eldridge’s status with the IRS or even looked into what an enrolled agent actually is. Even if he had, Burbach’s initial contacts with Eldridge should’ve thrown up more red flags than Florida in hurricane season. Burbach paid Eldridge $ 1,200 for a two-day class at which Eldridge provided a class handout that is comprehensible only in its descriptions of aggressive tax-avoidance schemes – -Eldridge encouraged Burbach to apply “Rule of Law” to “stop the 445 legal thieves” in Washington and “stop paying maximum taxes to the Grizzly Bear.” Based on his promise to help Burbach end [*45] his “intimate daily love relationship” with the IRS, Burbach began paying Eldridge an outrageous monthly fee, a fee he continued to pay even when Eldridge didn’t get the work done and used an absurd six-year due date as an excuse. Eldridge could not have been confused with a competent tax professional.
In the end, Burbach lost the bulk of his deductions and got walloped with penalties. Burbach also paid Eldridge a princely sum to achieve that result.
Ultimately, this is a mess of Burbach’s own making because he relied upon Eldridge who turned out to be little more than a tax scam artist. The real question is: Why did Burbach do that? It’s not as if there are not literally thousands of licensed, reputable and really good tax attorneys within a 200 mile radius of Chicago where Burbach seemed to be doing most of his business.
So why choose somebody like Eldridge?
The opinion of the Tax Court doesn’t tell us why Burbach chose Eldridge, other than to give the strong impression that Burbach simply got snowed by Eldridge’s odorous bovine excrement. Yet, for whatever reason, this is a common story as otherwise smart, well educated, and sophisticated business people keep falling for tax hucksters and keep having similar results to what Burbach experienced here.
The truth is that nobody enjoys paying taxes, not even IRS employees, those in the IRS General Counsel’s office, the attorneys at DOJ-TAX, or even the Secretary of Treasury. Yet, there is a right way and a wrong way for folks to go about attempting to lawfully minimize their taxes.
Burbach went the wrong way. The right way for successful business people like Burbach is to interview around and hire the best tax attorney that you can find, and then after that tax attorney gives you his or her advice, seek a completely-independent second (or maybe even a third) opinion from yet another tax attorney about the first tax attorney’s advice. Only after there is concurrence from all involved that the tax planning is appropriate should one more forward with it.[This is not to suggest that all CPAs don’t give good tax planning advice. A few do, but that’s really not their training or job function, which is to record and report what has been done in the past rather than to advise on the future. Anecdotally, based on my 30 years of experience, one is much more likely to get quality tax planning advice from a tax attorney than a CPA. I’ve met a few CPAs who were good tax planners, but suffice it to say that they are few and far between. Also, of course, CPA have no training or skill in anything like asset protection planning, if that is a concern, and communications with CPAs are not protected by attorney-client privilege which can play a critical role if indeed later litigation involving the plan materializes. I have not just a few actual stories of asset protection disasters caused by CPAs thinking they were legal planners too.]
What one should absolutely not do is to put their tax planning faith in somebody who is not a tax attorney or CPA, as Burbach did with Eldridge. They should also not overlook my critical advice about getting second opinions.
Unfortunately, there are a lot of hucksters like Eldridge out there who make big promises about selling the latest-and-greatest tax and asset protection plans, but in fact just sell worthless junk to the unwary. Google “asset protection” and you’ll find these folks by the boatload. Tell them that you want a second opinion, and they’ll tell you that only they know the recipe for the “secret sauce” and add some gibberish about tax attorneys not being knowledgeable about “real” tax and asset protection. Should you be duped by them, you’ll walk away like Burbach here: With an armful of worthless entities and strategies, a huge future tax liability, no real protection from liabilities, and a much lighter wallet.
In the end, Burbach was lucky that the liabilities that he was originally concerned about didn’t arise, because the alleged asset protection planning that Eldridge did for him would have been little more than slight speed bumps for creditors, if not actually make things worse.
The opinion of the Tax Court referenced below is well worth reading.
Burbach v. Comm’r, T.C. Memo. 2019-17 (U.S.Tax Ct., March 7, 2019). Full Opinion at https://assetprotectionbook.com/casedocs/burbach/burbach_opinion.pdf
This article at https://goo.gl/54HYJJ