IRS scrutiny of tax shelter spurs doctor audits

Attorneys say the IRS is looking into physicians' investments made through a dentist-founded company called Xelan.

By Katherine Vogt, AMNews staff. Oct. 4, 2004.

At least 220 physicians and dentists who participated in tax shelters through a San Diego financial services firm catering to doctors are being audited by the Internal Revenue Service, and the agency has gone to court to get the names of nearly 2,000 more.

The IRS is scrutinizing some of the products and services offered through a family of companies run by Xelan Inc. A spokeswoman for the IRS would not confirm or deny an investigation. However, lawyers for Xelan and physicians under audit said the IRS is looking into whether the firm promoted abusive tax shelters.

Physicians "haven't been told they did anything wrong or have to forfeit those [tax] deductions," said Michael C. Durney, a Washington, D.C.-based tax attorney who is representing the physicians and dentists already under audit. "There has been no suggestion anywhere that any of these doctors are under any suspicion in regard to these Xelan programs."

Still, the process is no picnic for Xelan-affiliated investors like Daniel Orr, MD, DDS, a Las Vegas oral surgeon and attorney.

"Nobody likes to get audited, but on the other hand that's what the IRS does," said Dr. Orr, whose audit began last year. "However, I thought it was interesting they chose to audit 200 or so doctors at the same time when they could have just done a few test cases."

There has been no formal criminal filing or legal action to suggest that Xelan broke any laws, nor is there an indication that physicians with similar investments through other companies could face trouble from the IRS.