Dr. Mehmet Oz—President Trump’s nominee to lead the Centers for Medicare and Medicaid Services (CMS)—paid no Medicare taxes in 2023 and only negligible amounts in 2022, according to recent reports.
This revelation from a recent episode of The Accounting Podcast spotlights tax strategies used by wealthy individuals and raises questions about who funds our social programs.
The Limited Partner Exemption: Dr. Oz’s Tax Strategy
At the center of this controversy is a tax strategy known as the “limited partner exemption” to self-employment taxes. Here’s how it works:
Self-employed individuals typically must pay 15.3% in self-employment taxes, which includes 12.4% for Social Security (applied only to the first $168,600 of income in 2024) and 2.9-3.8% for Medicare. Unlike Social Security taxes, Medicare taxes have no income cap, making them a significant consideration for high-income earners like Dr. Oz, whose net worth is estimated between $100 and 300 million.
The limited partner exemption, found in Internal Revenue Code section 1402(a)(13), allows certain individuals to avoid these taxes. As Blake explained, “The provision excludes the distributive share of any item of income or loss of a limited partner as such, other than guaranteed payments from net earnings from self-employment.”
Dr. Oz employed this strategy through his limited liability company, Oz Property Holdings LLC. By classifying himself as a limited partner, he reportedly avoided approximately $440,000 in Social Security and Medicare taxes over the examined period.
“What is a limited partner? It’s ambiguous because the IRS and the Treasury regulations do not provide a clear definition of what a limited partner is,” noted Oliver. This ambiguity creates a significant gray area that can be exploited, especially since these rules were created before LLCs became common in the 1990s.
Democratic staff on the Senate Finance Committee have questioned Dr. Oz’s classification, arguing he couldn’t truly be a limited partner because he was actively involved in his business operations. A recent Tax Court case (Soroban Capital Partners L.P. v. Commissioner, November 2023) rejected the argument that limited partners can never be subject to self-employment tax, instead calling for a “functional analysis” of involvement. However, the court didn’t establish specific criteria for making this determination.
“The court didn’t make this easy and they didn’t establish any test on what a limited partner is, whether you’re actively involved in the business,” Blake observed. “So there you have that gray area that you can exploit like Dr. Oz, to not pay Medicare taxes.”
IRS Enforcement Challenges Amid Workforce Reductions
The Dr. Oz tax strategy story emerges as the IRS faces significant challenges. The Department of Government Efficiency (DOGE), led by Elon Musk, has proposed cutting the IRS workforce by 20% by May 15th—a reduction from earlier rumors of 50% cuts among the agency’s 90,000 employees.
These cuts would eliminate nearly 6,800 additional employees, in addition to the 6,700 probationary employees already let go and 4,700 employees who took voluntary buyouts under the “fork in the road” program.
“We know from years of covering this that every dollar you put into the IRS gets you back $12 in taxes that are going uncollected right now,” explained Blake. “And the tax gap is in the hundreds of billions of dollars a year. So if we actually want to solve the budget crisis, if we want to solve the debt problem in this country, we need to collect revenue.”
Without sufficient revenue agents to pursue complex cases involving high-income taxpayers, questionable tax strategies may continue unchecked. The legal battle over these cuts has already begun, with a federal judge ordering six federal agencies, including the Treasury Department, to rehire probationary employees who were fired last month.
The IRS also faces significant technological challenges. Jeff Johnson, a former IRS employee interviewed by Blake, described an antiquated system in which employees must use green-screen interfaces to access tax information—a tedious process that limits efficiency.
“IRS systems are extremely antiquated,” Oliver explained. “Jeff described having to log into a green screen system where you pull tax information, and it’s extremely tedious. You can print to PDF. That’s about all you can do.”
Blake argued that the solution isn’t simply more personnel: “This is a problem that actually can’t be solved with more people. It can only be solved with modern technology.” More efficient technology could potentially allow fewer agents to conduct more audits effectively.
In another sign of internal conflict, William Paul, the IRS acting chief counsel, was demoted after reportedly clashing with DOGE over sharing tax information with multiple agencies.
Implications for Tax Professionals and Policy
Dr. Oz’s tax strategy raises important questions for accounting professionals and tax policy. The case illustrates how ambiguity in tax law creates opportunities for sophisticated planning that often benefits wealthy individuals.
“Just think about this,” Blake remarked. “How many people are doing this, classifying themselves as limited partners when they’re actually actively involved in the business? Probably lots, because it seems like it’s a fairly easy thing to do because of the gray area involved.”
This ambiguity persists despite the IRS proposing regulations in 1997 that would have formalized the definition of a “limited partner.” These rules were never finalized, leaving a persistent gray area.
The strategy bears similarities to S Corporation compensation planning, where owners must determine a “reasonable salary” to pay themselves, with the remainder potentially exempt from self-employment taxes. Both areas involve significant professional judgment.
Proper documentation is crucial for accounting professionals when employing such strategies. Blake recalled an interview with Jasmine DiLucci in which she pointed out that it doesn’t matter how clever your tax strategy is if you don’t execute it properly. This means having documentation to back up your tax position in case of an audit.
However, the likelihood of IRS challenges to such strategies is directly tied to enforcement capacity. “If you are helping really high net worth individuals avoid taxes, it’s actually great if you have all this ambiguity, and it’s great if you don’t have a lot of revenue agents going after you,” Blake noted.
Perhaps most significantly, Dr. Oz’s case only came to light because of his political nomination. As Blake observed, “I bet you this would never have come to light, and Dr. Oz would never have been audited and asked to pay this Medicare tax, Social Security tax, unless he had become political.”
Unfortunately, scrutiny of tax strategies often depends more on public visibility than systematic enforcement. For every high-profile case that receives attention, countless others likely remain unexposed.
The Tax Strategy Paradox
The irony is striking—someone who avoided Medicare taxes is now nominated to lead the Medicare system. While the strategy appears legal under current tax law, it raises questions about fairness in our tax system.
“I mean, we should be doing this, David. Nobody’s ever going to audit us,” Blake remarked half-jokingly—highlighting how enforcement gaps create opportunities for aggressive tax planning.
For accounting professionals, Dr. Oz’s case offers important lessons about documentation, enforcement realities, and ethical considerations when advising clients on tax strategies. As enforcement resources diminish, professional judgment and ethics become increasingly important safeguards for tax system integrity.
To hear the complete analysis of Dr. Oz’s tax strategy and its implications, listen to the full episode of The Accounting Podcast using the player above or listen here.