The IRS is investigating a Poughkeepsie medical practice for possible abuse of an insurance program the agency characterizes as one of the perennial “dirty dozen” tax scams.
U.S. Attorney Damian Williams petitioned federal court in White Plains on Nov. 28 to compel Howard Jay Kaplan MD P.C. to produce records and testify about its insurance.
“The testimony and documents sought,” the petition states, “can reasonably be expected to cast light upon the subject of the IRS investigation.”
Dr. Howard J. Kaplan, an ophthalmologist who founded the medical practice in 1997, said in an email that he believes the petition may have been filed in error, because “I responded to the IRS request for records immediately with no follow up request for clarification or further documentation.”
“It is my understanding that the primary case has since been closed by the government, with the primary issue favorably determined. Â My attorney will be contacting the government with the hope of putting this matter to rest without further ado.”
Dr. Kaplan operates the medical practice as Hudson Retina. Besides the main office in Poughkeepsie, Hudson Retina has offices in Carmel, Fishkill and Kingston.
For several years the IRS has been investigating captive insurance, where a business or group of businesses form, own and control an insurance company as a wholly owned subsidiary.
Captive insurance is a type of self-insurance that can provide legitimate lower costs and better risk management to the parent company, as well as significant tax advantages.
The insurance companies are often based in offshore tax havens such as Bermuda or the Cayman Islands, where they can avoid taxes. Meanwhile, the parent companies deduct the insurance premiums on their tax returns to offset their income.
It’s the taxing techniques that have landed captive insurance on the IRS’s annual “Dirty Dozen” list of “potentially abusive arrangements that taxpayers should avoid.”
The IRS concern is that the insurance can be designed to cover implausible risks, according to a June 2022 IRS announcement. The price of premiums can be inflated — thus increasing the deduction for the parent company. Or the insurance entity simply lacks a legitimate business purpose.
The IRS announced in April 2021 that it was stepping up examinations of captive insurance programs, after U.S. Tax Court ruled that an Arizona construction company’s insurance business did not qualify as insurance for federal taxes.
In September 2021, the IRS issued two summonses to the Kaplan medical practice, to testify and produce records on its tax liabilities for 2018 and 2019.
The IRS wanted all documents about the insurance policies, premiums and payments, for example. It demanded the general ledger, a financial statement, corporate minutes, the names of all owners and officers, and more.
The summonses were handed to Dr. Kaplan on Sept. 10, according to the petition. They set an Oct. 12 deadline to appear at the IRS office in Poughkeepsie, a half-mile from Hudson Retina’s main office.
On Oct. 12, no one showed up for the IRS examination.
The IRS petition and summonses do not state the value of the tax deductions at issue, or cite evidence that the medical practice abused a captive insurance arrangement.
The government is asking the court to direct the Kaplan medical practice to produce the requested records and to appear before a revenue officer “at the time and place designated by the IRS, for the purpose of giving testimony.”
