This season’s theme is Hard Conversations, and in this final episode, Michael and Brad share their own hard conversation with a physician client involved in a tax evasion scheme. Tune in for Brad’s “main character” moment, the impact of differences in communication, risk tolerance, and health care compliance.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
Intro: [0:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences creating simplicity in 3, 2, 1.
Brad: Welcome back to another episode of the Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my co-host Michael Byrd.
Michael: As a business and healthcare law firm, we meet a lot of interesting people and learn their amazing stories. This season’s theme is hard conversations. We’ve been taking real client stories and scrubbing their names and building these stories around confronting and having hard conversations. Now, Brad, they don’t all have great outcomes, but we’ve had plenty of teachable moments and we’ll have another one today.
Brad: You know, Michael, I can always tell when we’re on the last show of the season because the intro is starting to sound old. You know, much like you old.
Michael: Brad, for once I’m actually happy that you’re making fun of me for my [00:01:00] age. YouTube’s probably really confused. Yes. Michael’s the one without gray hair, even though he’s calling me old. Its okay, we’ve had a lot of funny conversations lately at the office about Generational communication differences.
Brad: Okay, boomer.
Michael: Well, as you know, Brad, I’m a card carrying Gen Xer and I tend to have a lot of ammunition about the different communications that happen by generation with my five kids, plus my two new bonus kids that my kids have gotten married to, so I’ve got a lot of generational perspective in the Byrd house.
Brad: Yeah, you’re like the regular United Nations. All the new languages you probably have to learn as your kids pick up different generational languages.
Michael: We had the whole family at the house over Christmas, my adult kids in from out of [00:02:00] town, spouses, and one of the funniest bonding moments was listening to them all start going back and forth with each other over the emotional scars that they still carry to this day from a dad text response that says “Okay.”
Brad: I don’t understand.
Michael: Well, apparently using punctuation in a text message, Brad, is a major trauma, and especially if the recipient is a millennial or a Gen Z’er. For us, Gen X’ers, we just call it grammar.
Brad: Okay. So, Michael, there’s a period for me saying, “Okay.” because I want you to suffer a little trauma, but of course, no offense intended.
Michael: Oh, well, thanks for qualifying that.
Brad: Yes.
Michael: So I’m not allowed to be offended?
Brad: No, no offense attended.
Michael: I expect nothing less, Brad. Well, let’s keep this generational differences going with a little talk on [00:03:00] communications through emoji’s. Tell the audience, Brad, what are the most common emoji’s that you use?
Brad: Really, it’s dependent on what’s happening, but definitely one of my favorite go-to is the Smiley face with the teeth. I always thought that it was being mysterious, but I recently learned the emoji means that you’re worried. So I’m not worried. My favorite one is the rat emoji. It’s my version of when I’m trying to curse. There’s a movie I grew up on where someone yells out rats. It’s my curse word with a rat, and so if I’m really mad, I drop two rats in the text, which means double rats. You know, really crazy stuff over here. How about you, Michael? What is the most common emoji that you use?
Michael: Well, I have to say, first of all, I’ve heard you say words that were not rats before.
Brad: Yes. Well, I said in texting.
Michael: Oh! Okay, okay good. I use the crying face emoji, [00:04:00] the crying, laughing face emoji…
Brad: Yeah.
Michael: The thumbs up, the fist bump, and the heart emoji for my wife.
Brad: Aww, sweet.
Michael: I’m not afraid to mix them up. I’ll go searching for the right emoji for the right moment, but those are my most common ones.
Brad: Yeah, Michael, you’re just crazy like that. I’m sure if all our kids were listening to the show and they heard what you just said, they’d probably all give us their version of whatever the thumbs down is. If they hear their old men talking about emoji’s.
Michael: Yeah. It’d be a, as they would say, cringe-worthy moment. Well, yes. All the emoji’s we use are lame, Brad. They communicate when we use these, the message they receive is that we’re old.
Brad: Oh, that sucks.
Michael: One of the most popular emoji’s used by the younger generation is the skull.
Brad: Well, you know, I love Halloween, so I do drop the skull a lot, mostly during Saints games with my buddies all across the [00:05:00] country and when things aren’t looking good, I drop a skull. I must be in the in crowd now, Michael.
Michael: No, Brad, you’re embarrassing yourself again.
Brad: Oh no.
Michael: The skull actually replaces the crying, laughing face emoji. This is, I am laughing so hard that I’m dead.
Brad: Well, that just escalated very quickly there.
Michael: Yep. We’re probably hopeless, but we’ve gotta make some progress here.
Brad: Okay.
Michael: So, let’s move on to generational differences with jargon.
Brad: Okay. I think you’re kind of dating yourself there by even using the word, Jargon.
Michael: Okay, well, fair point. The last time I used that word was a long time ago, so maybe I should have just said slang.
Brad: Okay.
Michael: I’m going to give you a quiz this time.
Brad: I’m excited.
Michael: Do you know what the word rizz means?
Brad: Yes, It stands for the hotel that I like to stay in when I’m feeling wealthy. It’s the Ritz Carlton.
Michael: Yeah, no. Actually, when this [00:06:00] whole conversation started one of our favorite podcasts was Smartless. I heard them reference this and I walked in and I asked Riley, whose desk is right near my office, and she looked at me with a blank face. She didn’t know it either. That’s the difference even between my teenage kids and, you know, the 20 somethings.
Brad: Okay.
Michael: Rizz is apparently short for charisma. If someone has Rizz, they’ve got that kind of “It” factor.
Brad: Well, in my defense, if Riley doesn’t know it, I should not be in trouble.
Michael: Oh, I took great comfort in knowing that she didn’t know it. I felt really, really lame. Here’s some other words that are kind of the…
Brad: Hold on. You are lame, but Riley’s not.
Michael: I felt better at that moment.
Brad: Oh, okay.
Michael: These are mostly teenager words, but some of them are for the 20 somethings as well.
Brad: Okay.
Michael: Have you heard the term, Bussin? [00:07:00]
Brad: No.
Michael: Okay. Slaps?
Brad: No.
Michael: Stan?
Brad: Is the guy named Stan. Mr. Stan?
Michael: No. Slay?
Brad: I have heard that one.
Michael: Okay. Glow up?
Brad: No.
Michael: Bet?
Brad: No.
Michael: Suss?
Brad: No, not really.
Michael: Main character?
Brad: When I’m writing a play maybe.
Michael: Do you know what a Karen is?
Brad: I do.
Michael: Okay, all right.
Brad: well, I don’t know, Michael, it kind of felt like you’re doing a lot of phonic reading or writing there. I think slay, I used to know and it used to mean looking hot or looking good, but someone recently told me that doesn’t mean that anymore. I have no idea what you just said, honestly. Except I think I heard “Brad is better than you” Maybe. However, I have a confession, Michael. You told me that you were going to throw a bunch of words at me and I couldn’t go research this area so I didn’t, but [00:08:00] this morning when I was preparing for the podcast, I happened to ask my daughter if she had heard any of those words before. In full disclosure, my daughter Madeline’s only 14, so she knew every single one of them. I learned a couple of what the phrases meant, so I did cheat a little bit.
Michael: Okay, well, go ahead.
Brad: Without her I would’ve had no clue.
Michael: I want to hear what you have to say.
Brad: Well, I did learn what Sus meant, and when I showed her the word, I found out that you misspelled it.
Michael: Oh, well, excuse me. Is it just S U S?
Brad: Yes.
Michael: Yeah. I wrote it S U S S on our show notes.
Brad: Yes.
Michael: Oh my gosh.
Brad: The only thing I wanted to offer you was that as we were trying to be cool, we still messed up.
Michael: Oh, I definitely fell out of my comfort zone.
Brad: So, please help the audience out since we have all these words we just threw out.
Michael: Yeah, for sure. I’m going tell you what I understand them to be. [00:09:00]
Brad: Okay.
Michael: Bussin is something that is great, but usually it’s talked about in context of food. So “this food is bussin”.
Brad: Okay.
Michael: Actually slaps is the same.
Brad: Oh.
Michael: In my understanding of it. So, “This food slaps”, “This food’s bussin”. Same thing. Stan is like. I stan the legal 123s with ByrdAdatto. You’re a follower, a loyal follower.
Brad: Oh, alright.
Michael: Slay is outdated now, so we’ll move on from that. Bet is like saying yes, but you’re trying to be cool about it.
Brad: Wow.
Michael: My freshman in college says that all the time. You’re like “you ready to go?” “bet”.
Brad: Is it like “You bet”?
Michael: Kind of frat boy, Yeah.
Brad: Okay, got it.
Michael: Yeah. Suss, it’s off of suspicious. Someone is suss.
Brad: Got it.
Michael: Then a Karen probably most people know, but it’s a reference to that kind of mom at a [00:10:00] restaurant that’s complaining about the food, complaining about the bill, or just in general complaining. And then we talked about a main character, and that’s someone that has the spotlights on them. It’s used in context a lot to social media. Like who’s the main character?
Brad: Ah, okay.
Michael: That’s the best I can do, man.
Brad: I’m not sure I feel any better yet, Michael, but I’m glad you didn’t ask our research assistant, Siri, these questions. Siri might have recommended you go to a speech therapist, if you asked her any of those questions.
Michael: And probably no teenagers are listening, so they won’t be able to correct us.
Brad: There you go.
Michael: We’re okay. Well, Brad, let’s lay out this story and hope that everyone will stan the Legal 123s with ByrdAdatto.
Brad: Yes, and as the cool kids say now, bet.
Michael: Okay, I don’t think you pulled that off.
Brad: No.
Michael: Our client in today’s story, Brad, was unfortunately not one of the kindest people.
Brad: No.
Michael: That’s actually putting it nicely.
Brad: Yes, it is. [00:11:00]
Michael: We are going to call her, Dr. Karen.
Brad: Yeah, and, Michael, I do hope anyone listening does not think we’re actually using the person’s real name, since you just completed the emoji talk and now you’re using these new words. You’ve already said, Dr. Karen is probably meaning that someone that’s not a good person.
Michael: Yeah, and Dr. Karen was vocal about the fact that, in the story and to us, that she did not like to pay taxes.
Brad: Yeah, I remember. We basically tried to duck and cover whenever she’d go on these rants about not wanting to pay taxes.
Michael: About the federal government.
Brad: Yeah.
Michael: And what they were doing. Well, we did not know this, but Dr. Karen met a tax attorney. The tax attorney told her that he could set her up so she did not have to pay any taxes.
Brad: Sorry for the audience, but I think you meant lower her taxes, right?
Michael: No, Brad, [00:12:00] no taxes and it probably won’t surprise you, but we will call this attorney, Mr. Suss?
Brad: Oh yeah. Well, audience members, I did get to meet Mr. Suss at one point and that’s pretty much a perfect name for him.
Michael: Well, apparently Mr. Suss had a convoluted model and he actually used the MSO model, which we’ve talked about on prior shows.
Brad: Yeah.
Michael: He would use various entities and asset transfers that would magically allow all the income to have an offsetting expense to it so that it could be deducted, so that ultimately at the end there would be no tax code.
Brad: Oh. Many tax attorneys and CPAs will work with their clients on avoidance strategies, which for audience members, developing a plan of action that takes less tax liability and maximize your after tax income. According to Mr. Suss, he had a revenue ruling against the IRS, which developed this complex [00:13:00] plan of actions which allow multiple separate companies before with multiple different arrangements and agreements with each company, allowing individuals to pay less tax. As you had mentioned in many circumstances, no taxes.
Michael: Yep, yeah, well, I forgot to mention one important piece of information. Dr. Karen had already signed up with Mr. Suss and had paid over $150,000 to have him set this model up. As I said, she signed all the documents and agreed to pay an annual fee of nearly a $100,000 for Mr. Suss to maintain this compliant IRS model.
Brad: Michael, maybe we should have become tax attorneys.
Michael: Yeah, I mean those dollar numbers look pretty good.
Brad: Yeah, no doubt.
Michael: There were multiple layers of issues with this new information we got from our client. We were practice [00:14:00] attorneys for them, and we just found out that there was this brand new corporate structure that was super complicated. It actually affected the structure of the medical practice.
Brad: Yep.
Michael: This new model that Mr. Suss had put together was done so without, any regard to the other relationships and healthcare relationships that Dr. Karen was a part of through her practice. At one point you became involved and I remember we both had the same reaction to the “No, Taxes” news.
Brad: Yeah, and as mentioned earlier, we are not tax attorneys as such. We cannot really determine, you know, as they were developing this model, was it really compliant with the IRS? Mr. Suss kept citing that he had authority, that it was good.
Michael: Yeah, I remember being very thankful for what I’m about to say. Is that around this time [00:15:00] you jumped in to take lead on reviewing these documents from Mr. Suss. They’re a big stack of documents. That’s how I would characterize it.
Brad: Yep.
Michael: As you said, we’re not a tax attorneys, but it had the feeling of a convoluted MSO model and we know how to build those. We figured at the very least, we could figure out what was supposed to be happening.
Brad: Yeah, and as you said, we are business and healthcare training, so we spent a lot of time analyzing regulatory laws and then in our case, folding them into the business model with obviously healthcare issues around them. I was working with an associate to review and the further we went into this model, the more confusing it got. The associate had a ton of follow up questions with me, and the more I learned, the more it started seeming like this might not be a tax avoidance strategy, but really more of a tax evasion. I’m going to use this air quote strategy, meaning that they’re not going to pay taxes at all, and they’re deliberately underpaying or not [00:16:00] paying taxes, and we just could not figure it out. The form as y’all probably have heard me talk about, just doesn’t really be, seem to be matching the substance behind it.
Michael: So this isn’t good news as you’re looking at this and you were fully in charge at this point of kind of the taking lead on this project. Was there a hard conversation?
Brad: I’ll just say this, unfortunately, yes. Sometimes you’re the bearer of bad news and I think you ended up kindly passing me the hot potato…
Michael: And happily.
Brad: because it was a pretty sad circumstances once you started going through it. I ended up having to have the hard conversation with Dr. Karen.
Michael: Dun, Dun, Dun, Brad, glowed up and became the main character in today’s story. You, Brad, put your big boy pants on to talk to Dr. Karen. How did it go?
Brad: Yeah, not great.
Michael: Oh!
Brad: Dr. Karen, she was very invested in this theory [00:17:00] and she had put a lot of money and time into this tax avoidance strategy where she didn’t have to pay taxes. She really wanted us to confirm it was perfectly legit, and as I started asking her more questions in the model and what services these companies were provided in, and who was she hiring them, she kept diverting every single answer back to Mr. Suss who just kept saying, it’s okay. We finally had to let Dr. Karen know that this model appeared to have no substance and the outcome for her would not likely end well. Dr. Karen pushed back a lot. She had known a ton of other doctors and well-respected business people that were hiring Mr. Suss, and so clearly I was not understanding the model.
Michael: Well, Brad, there’s a lot to digest here and that was definitely not a bussin outcome for Dr. Karen. Let’s go to commercial and learn some legal lessons on the other side. [00:18:00] I want to find out what happened with Dr. Karen.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto with my co-host Michael Byrd. Now, Michael, this season, if you don’t know this by now, our theme has been hard conversations. Hopefully this has not been a hard conversation for many of you older listeners to follow since we keep dropping so many crazy jargons or slangs in the show. Michael, [00:19:00] today’s story is really about hard conversations that sometimes we have to have with our own clients, and Dr. Karen is a well-respected physician and she can be very intimidating because she likes what she likes and she doesn’t like being pushed back and she’s doesn’t like hearing no. Which again, I’m not saying we like to say no to our clients either, but especially if everyone else is doing it.
Michael: Yeah, yeah, and let’s recap. So, going back, Dr. Karen was our client and we did the traditional business structuring health, we represented her medical practice, and we get some news out of the blue that she had signed on for a convoluted tax strategy to pay zero taxes.
Brad: Yeah.
Michael: We learned that the tax attorney, Mr. Suss had her sign a ton of corporate documents that affected significantly, [00:20:00] the model for Dr. Karen. So kind of the big point of the story was your realization that she had herself in a hot mess. There was some problems and even not being a tax attorney, you knew that this was not good. You had to become the main character, at least for the moment. What was it your daughter says?
Brad: I was about to have my main character moment.
Michael: Okay, you got to have it.
Brad: Yeah.
Michael: You had to go to someone, as you said, does not like to hear what she doesn’t want to hear.
Brad: Yeah.
Michael: And you had to tell her that.
Brad: Yeah, and I think I’ll just take a big step out of the story. Our job as attorneys, generally speaking is we are supposed to look at the law, look at the facts surrounding the law, and then describe what we see. I know sometimes our clients get frustrated, or you listeners, you probably get frustrated with your attorneys and say, I just want to know yes or no. Unfortunately, sometimes their shades are great out there, and as we’re going through these shades, [00:21:00] some people are terrified and they want to be as compliant as possible. Other people aren’t, and as many of you probably have heard me say, there’s a lot of risk out there. Some people are afraid to step out of the shower in the morning and other people will jump out of a perfectly good airplane, and that difference in that risk is hard for us as attorneys to know. Now, obviously, if we say, Hey, this is orange jumpsuit bad, do not do this, and you continue to pursue that path, It’s a very high likelihood, at least at our firm and many firms that I know, they’ll disengage with you.
Michael: Yeah.
Brad: But if it’s, Hey, these are the things to think about, it’s a little bit harder to walk around, but, again, we’re supposed to counsel you through that.
Michael: So you had your plan, you had your conversation, how did you handle the fire that came back from Dr. Karen?
Brad: Yeah, honestly, it was a very tough circumstance that I was under. Again, I’ll say it one more time, we’re not tax attorneys, and so we were already at a disadvantage in this entire situation. Dr. Karen really wanted us to know the answer, [00:22:00] and it had been fine and dandy up to this point that Mr. Suss had recommended the model, so it had to be great and again, we’re just simple regulatory attorneys, right? And we’re in the healthcare. I just said, I’m going to stick in my healthcare regulatory lane. I’m going to tell you how I would apply this with my healthcare knowledge, and I’ll also apply how the federal government reacts to certain models. Ultimately, we were able to at least provide her advice that even if it was not what she wanted to hear, it was the advice that we had to have, and this is unfortunately how we had to handle this hard conversation.
Michael: Gotcha, gotcha, well, yeah, for me I can relate. They’re called hard conversations for a reason. I think the biggest challenge for me is that they’re uncomfortable.
Brad: Yeah.
Michael: I know when I’m going to upset someone or let someone down, that I have this deep urge inside of me to avoid it, but yet [00:23:00] that’s part of our job.
Brad: Yes.
Michael: The easy answer is that it just takes practice, and an understanding that you’re doing more harm than good if you don’t have that conversation. It’s, it’s necessary. That’s our role with our clients at times is to let them know what the situation is, even if it’s not what they want to hear.
Brad: Yeah, so for our audience, maybe you can give some common scenarios?
Michael: Well, in the healthcare compliance world, it’s really common because a client will come to us with something they’re doing already or wanting to do that, if they were in any other industry would make perfectly great business sense, but yet in healthcare we can immediately recognize that there’s a compliance issue. Sometimes it’s jarring, unexpected news that they’re joyfully like, “Oh wow, I just started [00:24:00] my business, my dream”. Then you have to tell them, well, it’s illegal.
Brad: Yeah.
Michael: There are times when we’re sharing some shocking news.
Brad: Yeah, and unfortunately we hear some people say that we’re crushing their dreams, and we sometimes, unfortunately, we have to kind of laugh a little bit about this just to cope about the heaviness of having to have this trail tears in the wake of certain healthcare arrangement. I mean, clearly we want them to fulfill their dream, and especially as business attorneys, our first desire is to make the deal work. However, we are handcuffed in the sense that we have no control over the rules and regulations. If the model is not compliant in one way, it doesn’t mean that we couldn’t find other ways to make that happen. Obviously we want that dream to work for the individual ultimately at the end.
Michael: Yeah, I mean, the good news is, as you said, we’re business attorneys and so we are solution oriented. Most [00:25:00] of the time actually, there’s a path to accomplish what they’re trying to accomplish. Once you work through the emotional shock of the hard conversation, ultimately our clients are grateful that we redirected them and found a different way to accomplish what they’re trying to accomplish.
Brad: Yeah, and honestly, those are conversations I do love because we are able to get past the pain of the model not being exactly the way they wanted the model to be, but realizing they still could be successful and we’re happy to be part of their team to make that happen for them in a compliant way.
Michael: Well, Brad, everybody’s curious, what ended up happening with Dr. Karen and her arrangement with Mr. Suss?
Brad: Sadly, I was correct that this model was not a tax avoidance strategy, but a tax evasion strategy. I’ll just tell the audience what normally happens in these search [00:26:00] circumstances. There was a criminal defendant who got popped for doing some bad things in healthcare and he said, “Well, gosh, if you think this is bad, y’all should meet my accountant or my tax attorney. If I go and turn the evidence over, well, can I get a lesser sentence? Sure enough, this other individual ended up bringing in Mr. Suss, and the federal government started investigating him. During so, it blew up, our client, Dr. Karen ended up having to pay massive tax fines for failure to make payments because her model was non-compliant at all. Unfortunately, we’ve learned of many other individuals in the area who have done the same thing, paying hundreds of thousands of dollars in late fees on top of the taxes they owed. Although it was bad for Dr. Karen to have to pay all those [00:27:00] taxes back, Mr. Suss made national news, and it’s the kind that you really don’t want because he was arrested and indicted on numerous counts for his role in this, as they say, scheme involving creating shell companies, falsely reporting expenses to the IRS, and helping his client dodge taxes. He faced a host of issues, including wire fraud and preparing fraudulent income tax returns. According to the indictment, Mr. Suss created all these shell companies, quote on quote, providing services that really weren’t there. The federal government accused him of even creating operating agreements, service agreements, invoices, and annuities, all in ways to legitimately hide the money. Final thoughts?
Michael: Yeah, well it sounds first, Brad, like Mr. Suss evolved being Mr. Khan. We’re at the end of our season, and so my final thoughts may be a little broader even than [00:28:00] today. We’ve had this entire season surrounding hard conversations, and they’re hard for a reason. It is also a conversation, so there’s a communication element. We’ve had a lot of fun with the generational differences, yet we have to recognize we’re going to have hard conversations with people from different generations. It’s pretty telling to think that if I’m typing a text to say, “Okay.” I have this deep desire to put a period at the end of it because I’m Gen X, and I know my wife, who is also Gen X, would support me. Yet we have an impact on someone from a different generation with how we communicate. I think there’s a lesson to be learned for all of us as we are having hard conversations with people from different generations to [00:29:00] kind of meet them where they are and in the words we use if we’re texting, which is by the way, don’t have a hard conversation by text.
Brad: Yes.
Michael: But the messaging can make a difference on your ability to connect and work through whatever the issue is.
Brad: Excellent! Well, Michael, can you believe it? It’s over. That is the end of season 11 of the Legal 123s with ByrdAdatto, but audience members do not panic; we will have a preview of season 12 next Wednesday.
Outro: Thanks again for joining us today, and remember, if you like this episode, please subscribe. Make sure to give us a five star rating and share with your friends. You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com. ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not [00:30:00] constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.
