Robin Weingast - Section 79 captive inaurance IRS audits

New York, New York 24 comments

Google lance wallach for articles about IRS audits of 419 412i section 79 and captive insurance plans.You may want to try www.vebaplan.com or www.lancewallach.com for more articles about section 79 captive insurance 419 welfare benefit plan audits or 412i plans.

Easy to sue and win or hard to fight the IRS when they come to audit you if you are in a 419 captive insurance section 79 or 419 welfare benefit plan. Lots of lawsuits against insurance companies and agents that sold these plans.

Not all are abusive, most are.Buyer beware and careful of the IRS.

Review about: 419 Plan.

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Anonymous
#1147869

Taxes

The Little Black Book of Billionaire Secrets

JUL 17, 2015 @ 12:54 PM 1,011 VIEWS

Tax Court Drops The Hammer On Employee Welfare Plan

Peter J Reilly

CONTRIBUTOR I focus on the tax issues of individuals, businesses & more FOLLOW ON FORBES (349) Opinions expressed by Forbes Contributors are their own.TWEET THIS When a Tax Court judge writes “purported” it generally means something like “Liar, liar pants on fire” or bovine excrement.

Northwestern’s conservatism in not getting caught up in the 419 mania is another mark in its favor. For the last two decades Lance Wallach has been a voice crying out in the wilderness on the perils of 419(e) employee welfare plans. Lance is not an attorney, CPA or actuary. A graduate of Baruch College he trained as a financial planner with Mutual Benefit Life and then moved on to New England Life where he was a top producer selling life insurance as part of sophisticated plans.

Now he speaks and serves as an expert witness helping to repair the damage done by insurance companies who promoted abusive tax plans. The Plan That Should Have Stood Up? Somehow or other Lance and I became facebook buds and when I saw the decision in Our Country Home Enterpise Inc, I immediately contacted him. I thought he would view the decision as vindication of his view on these plans.

I was surprised when he told me that he thought the decision was wrong. His assessment of the situation was that...

Ron Snyder had come along and had tweaked his plan based on informal IRS feedback making him optimistic that he would be successful in Tax Court. What Can Be Abusive About These Plans? In the extreme version a closely held corporation makes contributions to the plan. Rank and file employees do not get any benefits.

The contributions are deducted by the corporation. The contributions go to fund whole dollar life insurance whose beneficiaries are designated by the principals. The principals are able to access the cash surrender value of the insurance contracts. The beneficiaries do not recognize any income.

What really drove these plans was that they allowed insurance companies to sell much larger policies than people, not motivated by tax savings, would have been willing to buy. Lance indicated that all the major life insurance companies, with the notable exception of Northwestern Mutual promoted the plans. The companies tried to avoid responsibility when the IRS cracked down on them. The Country Home Decision Whatever the merits of the Sterling Plan might have been relative to other 419 plans, the Tax Court came down hard on it.

In Our Country Home Enterprise Inc several taxpayers involved in the Sterling Plan ended up with business entities being denied deductions, individual beneficiaries being required to recognize income and an enhanced 30% accuracy penalty for failing to adequately disclose a listed transaction. Total tax and penalty was over $3 million. The decisions on the small number of taxpayers will be applied to over 40 others. The decision covered plans that were run by C corporations and S corporations with and without life insurance involved.

Recommended by Forbes Treasury To Study Possible Abuses Of Small Captive Insurance Companies Northwestern's Non-Linear Approach To Innovation Northwestern MutualVoice: You're Finally Making More Money. Now What? Small Businesses, MDs, Get Relief From Killer Tax Penalties Actuary In Tax Court Beats Northwestern And IRS On Accuracy Of 1099-R MOST POPULAR Photos: The Most Expensive Home Listing in Every State 2016 +191,273 VIEWS The Hilarious Feminist Backlash To Brazil's Impeachment Fallout MOST POPULAR Photos: Royal India Tour 2016: Prince William and Kate Middleton MOST POPULAR 4 Essential Tips To Becoming A Better Leader I was pretty sure as to how the decision was going to go after reading the first sentence. The deficiencies stem from petitioners’ participation in the Sterling Benefit Plan (Sterling Plan), a purported welfare benefit plan.

The parties have selected these seven cases to serve as test cases for issues related to the Sterling Plan. The parties in approximately 40 other cases pending before the Court have agreed to be bound by one or more of the final decisions in these cases. (Emphasis added) When a Tax Court judge writes “purported” it generally means something like “Liar, liar pants on fire” or bovine excrement. The word “purported” in the first sentence is a sign that things are not going to go well for the taxpayers.

We conclude and hold that petitioners significantly underreported income on their Federal income tax returns for each subject year. In addition, the evidence shows (and we find) that petitioners consciously participated in a plan that, as advertised to them, they should have known (and probably knew) was too good to true. A reasonable person in the position of petitioners also would not have been oblivious to the fact that the judiciary had rejected the use of cash value life insurance to fund welfare benefits in similar settings. There Is More I spoke with Sam Susser, a retired IRS manager.

Sam represented several of the taxpayers on audit. One thing he realized was that many of them were probably required to file From 8886 – Reportable Transaction Disclosure Statement. The IRS has been going to town with that one because there is a stiff penalty for not filing it or filing it wrong. That penalty cannot be litigated in Tax Court.

He thinks it likely that that will now be assessed against some of the participants or confirmed if it has already been assessed. And There Is Even More I knew this was an important decision when I saw it if only from being the first regular Tax Court decision of this half of the year. It has not received a lot of coverage yet.

Lance has sent me a lot of material to absorb, so there will probably be a few more posts.Lance indicated that the same promoters have variations of the scheme going under other guises.

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Anonymous
#1052146

Lance

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Profile People Photos Collections Communities Events Hangouts Pages Settings Feedback · Tour Help · Region Privacy · Terms · Maps Terms Lance Wallach 2 circles 98 followers|41,993 views Lance Wallach Shared publicly - 8:17 AM L Wallach Captive Insurance Captive Insurance, Lance Wallach Expert Witness, 412i Plans, 419 Problems, Section 79 Plans Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans - HGExperts.com by Lance Wallach IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A - By Lance Wallach - Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as listed transactions." These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions.

In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction. But you are also in...

Not only do you have to file Form 8886, but it also has to be prepared correctly. I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel.

The filing instructions for Form 8886 presume a timely filling.Most people file late and follow the directions for currently preparing the f Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans - HGExperts.com lwallachcaptiveinsurance.blogspot.com

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Anonymous
#1041319

Tax practitioners are seeing a rise in IRS audits directed at companies using captive insurance arrangements (captives).While big businesses have long used captives as a way to manage risk, IRS efforts appear to be directed at smaller companies that rely on Sec.

831(b) (small captives with premiums of $1.2 million or less for the tax year qualify for special tax treatment).

For a captive insurance arrangement to qualify as legitimate, the taxpayer must demonstrate that the premiums charged are appropriate and that the need for insurance is real. Companies that create captives to shelter taxable income can expect an audit and hefty penalties. Years ago, the captives industry was marred by widespread fraud. The resurgence of cell captives, which involve a parent company setting up separate cell insurance subsidiaries whose assets are kept separate from each other, has again attracted the IRS’s attention.

According to one expert, the IRS is focused on companies that underwrite their own terrorism policies, which often involve charging premiums that bear no relationship to the actual risk.

The IRS considers such arrangements to be abusive tax shelters. To be considered legitimate insurance, there must be adequate risk shifting and risk distribution (see Rev. Rul. 2008-8).

Captive Insurance Poses Big Tax Risk for Small Businesses

The risks for small businesses that...

And an even bigger risk is that, because the IRS believes that some of these arrangements are also abusive tax shelters, it could impose civil penalties under Sec. 6707A of up to $200,000 for failure to disclose a listed transaction.

If a client plans on establishing a captive, a tax adviser should make sure he or she understands the rules or partners with another member firm or tax attorney who does. Past scams were often offered by offshore and internet promoters that possessed official-looking tax opinion letters and polished presentation materials. Unfortunately, those opinions were frequently worthless.

If a client is approached by a promoter, the practitioner should be on high alert and insist the client perform some due diligence on the promoter.

The author has seen several cases where the plan was considered an abusive tax shelter, and, even worse, the money was later stolen.- See more at: http://www.thetaxadviser.com/issues/2013/dec/clinic-story-05.html#sthash.5KtMxSwe.dpuf

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Anonymous
#1002009

419e Plan Litigation

419e Plan Litigation

Search SKIP TO CONTENT

UNDERSTANDING 419 LITIGATION HOW INSURANCE COMPANIES SCAM CONSUMERS HAVE YOU SEEN THOSE COMMERCIALS? LANCE WALLACH EXPERT SERVICES ABOUT US

419 LIFE INSURANCE PLANS AND OTHER SCAMS – LARGE IRS FINES – THE IRS RAIDS PLAN PROMOTER BENISTAR, AND WHAT DOES ALL THIS MEAN TO YOU?

Anonymous
#983607

Be careful when u follow the masses. Sometimes the M is silent. Dont look for someone who will solve all your problems: Look for someone who wont let u face them alone.

Anonymous
#980063

Robin is a great salesperson and has great skills and is smart Lance Wallach she knows her stuff

Anonymous
#913263

robin weingast lawsuits

2 of 5 Robin Weingast Reviews

Issue not resolved

Jun 27, 2012 robert sherman 145 VIEWS 15 COMMENTS $500 LOSSES 5/5 REVIEW RATING New York, New York Financial Services - Consulting, Marketing 419 Welfare Benefit Plan

IRS audits 419 welfare benefit plans that robin weingast sold google lance wallach for details Beta plan and other 419 plans are IRS audit targets.Then the buyer sues the insurance agent that sold the plan to get all their money back.

IRS also audits 412i plans and sometimes captive insurance and section 79 plans. Google lance wallach for articles and details about these plans and IRS audits and lawsuits or try www.lancewallach .com com or www.taxaudit419.com or vebaplan.com for a lot more info about 419 welfare benefit plans and IRS audits, lawsuits and more. Thanks cc62ad1 review #327563 6 Helpful? 0 Had the same issue1 Comments15 Report Submit review about this company › Post Comment Anonymous Anonymous Mar 13 IRS tax relief firm, Lance Wallach, speaking: 412i-419 Plans: 412i ...

lancevids.blogspot.com/.../412i-419-plans-412i-419-plans-412i-419.htm...‎ by Lance Wallach - in 49 Google+ circles 3 days ago - sea nine veba 419 help beta plan 419 IRS audits lawsuits ... Employers: Abusive Tax Shelters & 419 Plans Lawsuits: IRS to Audit Sea N.... Help with Common IRS Problems: Beta Plans Abusive Tax Shelters...

beta plan images - We Heart It 0 0 Reply vebaplan2 vebaplan2 Mar 07, 2013 Plainview, New York Robin told me that she is a pension expert and has a lot of clients. I know that she is a hard worker. 0 0 Reply f f Nov 29, 2012 Dolan Media Newswires 01/22/2010 Small Business Retirement Plans Fuel Litigation Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes. There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS.

Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who...

Show more 0 0 Reply i i › f Feb 04, 2013 Plainview, New York NSA: Member Link Your link to accounting, tax and practice management ideas, tools, news and information. Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly By Lance Wallach May 14, 2008 Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits. Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings.

The solutions ranged from traditional pension and profit sharing plans to more advanced strategies. Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans. The result has been thousands of audits and an IRS task force seeking out tax shelter promotion.

For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme. Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed...

Show more 0 0 Reply l l Nov 26, 2012 March 8, 2010 In a speech last May, President Obama said, "Nobody likes paying taxes . . . .

And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars. This year is the last before the expiration of tax cuts originally put in place by the Bush administration.

If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent. Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes.

His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.One of the most popular strategies is...

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Anonymous
New York City, New York, United States #832751

sue hartford or other ins cos that sold 419 plans to get your money back google lance wallach who has never lost

Anonymous
Plainview, New York, United States #686594

file 8886

vebaplan2
Plainview, New York, United States #619612

robin told me that she was a pension expert and had a lot of clients. I know that she is a hard worker.

Anonymous
#578392

California

Enrolled Agent July 2008

Be Wary of Abusive 419(e) Welfare Benefit Plans

BY Lance Wallach, CLU, CHFC and Ronald H. Snyder, JD, EA

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.

The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

And what happened to the providers that were peddling Sections 419A(f)(5) and (6) life insurance plans a few years ago? We recently found the answer: Most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.

IRC Section 419(e) provides a definition of the term "welfare benefit fund" and provides that it includes a trust or "organization described in paragraph 7, 9, 17 or 20 of Section 501(c)" or any taxable trust that provides welfare benefits. Reference to IRC Section 419(e) is, therefore, unnecessary.

So, what are 419(e) plans?

We recently reviewed several so-called Section 419(e) plans. Many of them are nothing more than recycled Section 419A(f)(5) and (6) plans....

What are the problems?

Vendors commonly claim that contributions to their plan are tax-deductible because they fall within the limitations imposed under IRC Section 419; however, Sec. 419 is simply a limitation on tax deductions. The deductions themselves must be claimed under enabling sections of the IRC. Many fail to do so. Others claim that the deductions are ordinary and necessary business expenses under Sec. 162, citing Regs. Sec. 1.162-10 in error: There is no mention in that section of life insurance or a death benefit as a welfare benefit.

Some plans claim to impute income for current protection under the PS 58 rules. However, PS 58 treatment is available only to qualified retirement plans and split-dollar plans. (None of the 419(e) plans claim to comply with the split-dollar regulations.)

Recently, many accountants have been calling us for help. The IRS is sending audit letters to participants in some of the 419 plans. It has identified many of the 419 promoters, and demanded a listing of the names of companies in the plans.

Here's the problem that most promoters ignore: On April 10, 2007, the IRS issued final regulations under Sec. 409A of the IRC that made it crystal-clear that most of the so-called "419(e)" plans are in violation of the law and subject to hefty penalties, because they provide deferred compensation without complying with Sec. 409A.

How this applies

Section 409A does not apply to welfare benefits. In fact, several forms of welfare benefits are specifically excluded under Sec. 409A. However, such excluded arrangements do not permit transfer of property to the participant except for death, disability and payments made upon retirement in accordance with the Section 409A rules.

Most of the existing Sec. 419(e) and 419A(f)(6) welfare benefit plans do not comply with the Sec. 409A rules relative to transfers of insurance policies or cash payments other than upon death.

What does this mean for advisors? Under Circular 230 standards, a CPA or attorney who advises their client about participating in a non-compliant welfare benefit plan may be liable for fines and other sanctions. We expect that opinion letters relative to such plans have either been withdrawn or will be shortly. We admonish professionals carefully to review all communications with clients relative to such plans. The IRS has recently been successful in imposing huge fines on several law firms for blessing questionable transactions.

Conclusion

Time is of the essence in making and implementing a decision as to what to do. We have only seen one or two plans that may be in compliance. We therefore recommend that employers waste no time in contacting a tax professional to review their welfare benefit plan participation to verify compliance with the new law and regulations. Do not take the promoter's word that his plan is in compliance; odds are it is not.

Lance Wallach, CLU, ChFC, speaks and writes extensively about financial planning, retirement plans and tax reduction strategies, and is the author of numerous books including: Bisk Education's CPAs' Guide to Life Insurance, Avoiding Circular 230 Malpractice by the AICPA & The Team Approach to Financial and Estate Planning . Reach him at www.vebaplan.com or (516) 938-5007.

Ronald H. Snyder, JD, EA, is an ERISA attorney and enrolled actuary specializing in employee benefit plans.

Information contained in this article is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional for guidance.

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Anonymous
#575717

Dolan Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation

Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.

There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who...

A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.

Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed $1 million.

Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.

Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.

According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.

Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.

Another reason plaintiffs are going to court is that there are few alternatives - the penalties are not appealable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. "In street language, they lied," said Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.

In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs' lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.

"Insurance companies were aware this was dancing a tightrope," said William Noll, a tax attorney in Malvern, Pa. "These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn't any disclosure of the scrutiny to unwitting customers."

A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that "nobody can predict the future."

An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.

Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.

The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.

In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.

Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.

But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.

"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."

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Anonymous
to v Plainview, New York, United States #603780

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
to v Plainview, New York, United States #603782

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
to o Plainview, New York, United States #607238

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
#574006

419 Plans Attacked by IRS

By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Insurance agents and costs attacked. - Enrolled Agents Journal March*April - For years promoters of life insurance companies and agents have tried to find ways of claiming that the premiums paid by business owners were tax deductible. This allowed them to sell policies at a “discount”.

The problem became especially bad a few years ago with all of the outlandish claims about how §§419A(f)(5) and 419A(f)(6) exempted employers from any tax deduction limits. Many other inaccurate statements were made as well, until the IRS finally put a stop to such assertions by issuing regulations and naming such plans as “potentially abusive tax shelters” (or “listed transactions”) that needed to be disclosed and registered. This appeared to put an end to the scourge of such scurrilous promoters, as such plans began to disappear from the landscape.

And what happened to all the providers that were peddling §§419A(f)(5) and (6) life insurance plans a couple of years ago? We recently found the answer: most of them found a new life as promoters of so-called “419(e)” welfare benefit plans.

We recently reviewed several §419(e) plans, and it appears that many of them are nothing more than recycled §419A(f)(5) and §419A(f)(6) plans.

The “Tax Guide” written by one vendor’s attorney is...

Background: Section 419 of the Internal Revenue Code

Section 419 was added to the Internal Revenue Code (“IRC”) in 1984 to curb abuses in welfare benefit plan tax deductions. §419(a) does not authorize tax deductions, but provides as follows: “Contributions paid or accrued by an employer to a welfare benefit fund * * * shall not be deductible under this chapter * * *.”. It simply limits the amount that would be deductible under another IRC section to the “qualified cost for the taxable year”. (§419(b))

Section 419(e) of the IRC defines a “welfare benefit fund” as “any fund-- (A) which is part of a plan of an employer, and (B) through which the employer provides welfare benefits to employees or their beneficiaries.” It also defines the term "fund", but excludes from that definition “amounts held by an insurance company pursuant to an insurance contract” under conditions described.

None of the vendors provides an analysis under §419(e) as to whether or not the life insurance policies they promote are to be included or excluded from the definition of a “fund”. In fact, such policies will be included and therefore subject to the limitations of §§419 and 419A.

Errors Commonly Made

Materials from the various plans commonly make several mistakes in their analyses:

1. They claim not to be required to comply with IRC §505 non-discrimination requirements. While it is true that §505 specifically lists “organizations described in paragraph (9) or (20) of section 501(c)”, IRC §4976 imposes a 100% excise tax on any “post-retirement medical benefit or life insurance benefit provided with respect to a key employee” * * * “unless the plan meets the requirements of section 505(b) with respect to such benefit (whether or not such requirements apply to such plan).” (Italics added) Failure to comply with §505(b) means that the plan will never be able to distribute an insurance policy to a key employee without the 100% penalty!

2. Vendors commonly assert that contributions to their plan are tax deductible because they fall within the limitations imposed under IRC §419; however, §419 is simply a limitation on tax deductions. Providers must cite the section of the IRC under which contributions to their plan would be tax-deductible. Many fail to do so. Others claim that the deductions are ordinary and necessary business expense under §162, citing Regs. §1.162-10 in error: there is no mention in that section of life insurance or a death benefit as a welfare benefit.

3. The reason that promoters fail to cite a section of the IRC to support a tax deduction is because, once such section is cited, it becomes apparent that their method of covering only selected key and highly-compensated employees for participation in the plan fails to comply with IRC §414(t) requirements relative to coverage of controlled groups and affiliated service groups.

4. Life insurance premiums could be treated as W-2 wages and deducted under §162 to the extent they were reasonable. Other than that, however, no section of the Internal Revenue Code authorizes tax deductions for a discriminatory life insurance arrangement. IRC §264(a) provides that “[n]o deduction shall be allowed for * * * [p]remiums on any life insurance policy * * * if the taxpayer is directly or indirectly a beneficiary under the policy.” As was made clear in the Neonatology case (Neonatology Associates v. Commissioner, 115 TC 5, 2000), the appropriate treatment of employer-paid life insurance premiums under a putative welfare benefit plan is under §79, which comes with its own nondiscrimination requirements.

5. Some plans claim to impute income for current protection under the PS 58 rules. However, PS58 treatment is available only to qualified retirement plans and split-dollar plans. (Note: none of the 419(e) plans claim to comply with the split-dollar regulations.) Income is imputed under Table I to participants under Group-Term Life Insurance plans that comply with §79. This issue is addressed in footnotes 17 and 18 of the Neonatology case.

6. Several of the plans claim to be exempt from ERISA. They appear to rely upon the ERISA Top-Hat exemption (applicable to deferred compensation plans). However, that only exempts a plan from certain ERISA requirements, not ERISA itself. It is instructive that none of the plans claiming exemption from ERISA has filed the Top-Hat notification with the Dept. of Labor.

7. Some of the plans offer severance benefits as a “welfare benefit”, which approach has never been approved by the IRS. Other plans offer strategies for obtaining a cash benefit by terminating a single-employer trust. The distribution of a cash benefit is a form of deferred compensation, yet none of the plans offering such benefit complies with the IRC §409A requirements applicable to such benefits.

8. Some vendors permit participation by employees who are self-employed, such as sole proprietors, partners or members of an LLC or LLP taxed as a partnership. This issue was also addressed in the Neonatology case where contributions on behalf of such persons were deemed to be dividends or personal payments rather than welfare benefit plan expenses.

[Note: bona fide employees of an LLC or LLP that has elected to be taxed as a corporation may participate in a plan.]

9. Most of the plans fail under §419 itself. §419(c) limits the current tax deduction to the “qualified cost”, which includes the “qualified direct cost” and additions to a “qualified asset account” (subject to the limits of §419A(b)). Under Regs. §1.419-1T, A-6, “the "qualified direct cost" of a welfare benefit fund for any taxable year * * * is the aggregate amount which would have been allowable as a deduction to the employer for benefits provided by such fund during such year (including insurance coverage for such year) * * *.” “Thus, for example, if a calendar year welfare benefit fund pays an insurance company * * * the full premium for coverage of its current employees under a term * * * insurance policy, * * * only the portion of the premium for coverage during [the year] will be treated as a "qualified direct cost" * * *.” (Italics added)

Most vendors pretend that the whole or universal life insurance premium is an appropriate measurement of cost for Key Employees, and those plans that cover rank and file employees use current term insurance premiums as the appropriate measure of cost for such employees. This approach doesn’t meet any set of nondiscrimination requirements applicable to such plans.

10. Some vendors claim that they are justified in providing a larger deduction than the amount required to pay term insurance costs for the current tax year, but, as cited above, the only justification under §419(e) itself is as additions to a qualified asset account and is subject to the limitations imposed by §419A. In addition, §419A adds several additional limitations to plans and contributions, including requirements that:

A. contributions be limited to a safe harbor amount or be certified by an actuary as to the amount of such contributions (§419A(c)(5));

B. actuarial assumptions be “reasonable in the aggregate” and that the actuary use a level annual cost method (§419A(c)(2));

C. benefits with respect to a Key Employee be segregated and their benefits can only be paid from such account (§419A(d));

D. the rules of subsections (b), (c), (m), and (n) of IRC section 414 shall apply to such plans (§419A(h)).

E. the plan comply with §505(b) nondiscrimination requirements (§419A(e)).

Circular 230 Issues

Circular 230 imposes many requirements on tax professionals with respect to tax shelter transactions. A tax practitioner can get into trouble in the promotion of such plans, in advising clients with respect to such transactions and in preparing tax returns. IRC §§6707 and 6707A add a new concept of “reportable transactions” and impose substantial penalties for failure to disclose participation in certain reportable transactions (including all listed transactions).

This is a veritable minefield for tax practitioners to negotiate carefully or avoid altogether. The advisor must exercise great caution and due diligence when presented with any potential contemplated tax reduction or avoidance transaction. Failure to disclose could subject taxpayers and their tax advisors to potentially Draconian penalties.

Summary

Key points of this article include:

• Practitioners need to be able to differentiate between a legitimate §419(e) plan and one that is legally inadequate when their client approaches them with respect to such plan or has the practitioner to prepare his return;

• Many plans incorrectly purport to be exempt from compliance with ERISA, IRC §§414, 505, 79, etc.

• Tax deductions must be claimed under an authorizing section of the IRC and are limited to the qualified direct cost and additions to a qualified asset account as certified by the plan’s actuary.

Conclusion

Irresponsible vendors such as most of the promoters who previously promoted IRC §419A(f)(6) plans were responsible for the IRS’s issuing restrictive regulations under that Section. Now many of the same individuals have elected simply to claim that a life insurance plan is a welfare benefit plan and therefore tax-deductible because it uses a single-employer trust rather than a "10-or-more-employer plan".

This is an open invitation to the IRS to issue new onerous Regulations and more indictments and legal actions against the unscrupulous promoters who feed off of the naivety of clients and the greed of life insurance companies who encourage and endorse (and even own) such plans.

The last line of defense of the innocent client is the accountant or attorney who is asked by a client to review such arrangement or prepare a tax return claiming a deduction for contributions to such a plan. Under these circumstances accountants and attorneys should be careful not to rely upon the materials made available by the plan vendors, but should review any proposed plan thoroughly, or refer the review to a specialist.

A Rose By Any Other Name, or Whatever Happened to All Those 419A(f)(6) Providers? By Ronald H. Snyder, JD, MAAA, EA & Lance Wallach, CLU, ChFC, CIMC.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s “All Things Considered” and others. Lance has written numerous books including “Protecting Clients from Fraud, Incompetence and Scams,” published by John Wiley and Sons, Bisk Education’s “CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation,” as well as the AICPA best-selling books, including “Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.” He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexpert.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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Anonymous
#573996

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
#573990

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By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Call Lance Wallach at (516)...

--------------------------------------------------------------------------------

The willful failure to file the FBAR report or retain records of your foreign accounts can potentially lead to a ten-year prison sentence and fines of up to $500,000. This criminal penalty applies to all US citizens pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may also apply to persons living in the United States who are not citizens.

If you fail to answer the question truthfully on schedule B of your Form 1040 which asks if you “have an interest in or a signature or other authority over a financial account in a foreign country”, then your false statement might be deemed a criminal offense by the IRS per the sections mentioned above if other surrounding facts and circumstances apply.

Our office is headed by a former international tax IRS agent with 37 years experience as a CPA and Associate Professor of accounting. Call our office immediately so you can avoid the dire circumstances described above and deal with the other associated problems.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional.

ABOUT THE AUTHOR: Lance Wallach

Lance Wallach is a frequent speaker at national conventions and writes for more than 50 publications. He was the National Society of Accountants Speaker of the Year.

Copyright Lance Wallach, CLU, CHFC

More information about Lance Wallach, CLU, CHFC

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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FBAR Information

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By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Call Lance Wallach at (516) 938-5007

--------------------------------------------------------------------------------

The willful failure to file the FBAR report or retain records of your foreign accounts can potentially lead to a ten-year prison sentence and fines of up to $500,000. This criminal penalty applies to all US citizens pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may also apply to persons living in the United States who are not citizens.

If you fail to answer the question truthfully on schedule B of your Form 1040 which asks if you “have an interest in or a signature or other authority over a financial account in a foreign country”, then your false statement might be deemed a criminal offense by the IRS per the sections mentioned above if other surrounding facts and circumstances apply.

Our office is headed by a former international tax IRS agent with 37 years experience as a CPA and Associate Professor of accounting. Call our office immediately so you can avoid the dire circumstances described above and deal with the other associated problems.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional.

ABOUT THE AUTHOR: Lance Wallach

Lance Wallach is a frequent speaker at national conventions and writes for more than 50 publications. He was the National Society of Accountants Speaker of the Year.

Copyright Lance Wallach, CLU, CHFC

More information about Lance Wallach, CLU, CHFC

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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HG.org Worldwide Legal Directories

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Anonymous
#566725

Advisers staring at a new ‘slew' of litigation from small-business clients

Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price

By Jessica Toonkel Marquez

October 14, 2009

Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisers didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.

The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.

So advisers who sold these plans...

“There is a slew of litigation already against advisers that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”

Mr. Wallach declined to cite any specific suits. But one adviser who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending.

“My legal and accounting bills last year were $864,000,” said the adviser, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”

Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.

In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”

But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.

“If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisers that sold these plans to them,” .

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Anonymous
#564449

www.vebaplan.com for help

Anonymous
#563218

j

Anonymous
#555403

www.vebaplan.com for help

Anonymous
to k Plainview, New York, United States #614118

Be careful of abusive 419(e) welfare benefit plans

BY LANCE WALLACH AND RONALD H. SNYDER Oct. 22-Nov. 4., 2007

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.

The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

And what happened to the providers that were peddling Sections 419A(f)(5) and (6) life insurance plans a few years ago? We recently found the answer: Most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.

IRC Section 419(e) provides a definition of the term "welfare benefit fund" and provides that it includes a trust or "organization described in paragraph 7, 9, 17 or 20 of Section 501(c)" or any taxable trust that provides welfare benefits. Reference to IRC Section 419(e) is, therefore, unnecessary.

So, what are 419(e) plans?

We recently reviewed several so-called Section 419(e) plans. Many of them are nothing more than recycled Section 419A(f)(5) and (6) plans. Now, many of the same...

WHAT ARE THE PROBLEMS?

Vendors commonly claim that contributions to their plan are tax-deductible because they fall within the limitations imposed under IRC Section 419; however, Sec. 419 is simply a limitation on tax deductions. The deductions themselves must be claimed under enabling sections of the IRC. Many fail to do so. Others claim that the deductions are ordinary and necessary business expenses under Sec. 162, citing Regs. Sec. 1.162-10 in error: There is no mention in that section of life insurance or a death benefit as a welfare benefit.

Some plans claim to impute income for current protection under the PS 58 rules. However, PS 58 treatment is available only to qualified retirement plans and split-dollar plans. (None of the 419(e) plans claim to comply with the split-dollar regulations.)

Recently, many accountants have been calling us for help. The IRS is sending audit letters to participants in some of the 419 plans. It has identified many of the 419 promoters, and demanded a listing of the names of companies in the plans.

Here's the problem that most promoters ignore: On April 10, 2007, the IRS issued final regulations under Sec. 409A of the IRC that made it crystal-clear that most of the so-called "419(e)" plans are in violation of the law and subject to hefty penalties, because they provide deferred compensation without complying with Sec. 409A.

HOW THIS APPLIES

Section 409A does not apply to welfare benefits. In fact, several forms of welfare

Be careful of abusive 419(e) welfare benefit plans

(continued from page 1)

By Lance Wallach and Ronald H. Snyder

benefits are specifically excluded under Sec. 409A. However, such excluded arrangements do not permit transfer of property to the participant except for death, disability and payments made upon retirement in accordance with the Section 409A rules.

Most of the existing Sec. 419(e) and 419A(f)(6) welfare benefit plans do not comply with the Sec. 409A rules relative to transfers of insurance policies or cash payments other than upon death.

What does this mean for advisors? Under Circular 230 standards, a CPA or attorney who advises their client about participating in a non-compliant welfare benefit plan may be liable for fines and other sanctions. We expect that opinion letters relative to such plans have either been withdrawn or will be shortly. We admonish professionals carefully to review all communications with clients relative to such plans. The IRS has recently been successful in imposing huge fines on several law firms for blessing questionable transactions.

CONCLUSION

Time is of the essence in making and implementing a decision as to what to do. We

have only seen one or two plans that may be in compliance. We therefore recommend that employers waste no time in contacting a tax professional to review their welfare benefit plan participation to verify compliance with the new law and regulations. Do not take the promoter's word that his plan is in compliance; odds are it is not.

_______________

Lance Wallach, CLU, ChFC, speaks and writes extensively about financial planning, retirement plans and tax reduction strategies, and is the author of Bisk Education's CPAs' Guide to Life Insurance. Reach him at www.vebaplan.com or (516) 938-5007. Ronald H. Snyder, JD, EA, is an ERISA attorney and enrolled actuary specializing in employee benefit plans.

Information contained in this article is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional for appropriate guidance with respect to tax matters.

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Anonymous
#537814

THAN 22 YEARS

of successful

practice

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Professional Benefits Trust | 419 Litigation

Participants Of Professional BenefitsTrust/PBT/Mavin/Acadia Likely To Lose 50% Of Their Assets Per Year Under FBAR Reporting Rules As A Result Of DOJ Enforcement Action Against Tracy Sunderlage, Mavin LLC

Professional Benefits Trust | 419 Litigation

Potential trouble (419 Litigation) is in store for any participants of the Professional benefits trust (“PBT”) who chose to continue in the “welfare plan” and allow the assets to be moved offshore and be deposited into the Mavin Assurance and Acadia annuities are in danger of losing 50% of their assets per year in penalty payments to the United States Treasury.

On July 13, 2011, the Department of Justice sued Tracy Sunderlage, Mavin LLC and others in federal court in the Northern District of Illinois claiming that the PBT/Mavin/Aciadia scheme constitutes an offshore income tax scam. The DOJ seeks to enjoin the activities of these parties–but it also seeks to gain information about taxpayers who are participating in the Mavin and Acadia transations. Once the DOJ acquires the participant list in the lawsuit the IRS will commence enforcement activities against the participants the lists reveal.

419 Litigation Pertaining to PBT/Mavin/Acadia Offshore Income Tax Scam

The vast majority of the people participating in the PBT/Mavin/Acadia transactions do...

Big Trouble Ahead, Including 419 Litigation, For Many 419 Welfare Benefit Plan Participants

Participants in the PBT/Mavin/Acadia transaction should take action now to contact tax and other appropriate professionals to help them avoid these potentially disastrous consequences. There is a voluntary disclosure program available to FBAR non-filers that drastically reduces penalties…but the deadline for filing is August 31, 2011. Further, legal assistance will be required in order to return participants assets to the United States and to the control of the assets rightful owners.

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Robin weingast lawsuits

New York, New York 17 comments
Not resolved

IRS audits 419 welfare benefit plans that robin weingast sold google lance wallach for details

Beta plan and other 419 plans are IRS audit targets. Then the buyer sues the insurance agent that sold the plan to get all their money back. IRS also audits 412i plans and sometimes captive insurance and section 79 plans.

Google lance wallach for articles and details about these plans and IRS audits and lawsuits or try www.lancewallach .com com

or www.taxaudit419.com or vebaplan.com for a lot more info about 419 welfare benefit plans and IRS audits, lawsuits and more. Thanks

Review about: 419 Welfare Benefit Plan.

Comments

Anonymous
#980068

Robin is great at selling and really knows insurance, pensions etc, Lance Wallach

Anonymous
#965977

Robin Weingast - 419 IRS lawsuits IRS audits

4 of 5 Robin Weingast Reviews

Jun 18, 2012 by anonymous 397 VIEWS 14 COMMENTS 5/5 REVIEW RATING New York, New York Professional Services 419 Welfare Plan

Google lance wallach for help, as an expert witness his side has never lost a case, get all your money back

Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans.The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.There are business owners who owe $6,000 in taxes but have

Anonymous
#794272

IRS tax relief firm, Lance Wallach, speaking: 412i-419 Plans: 412i ...

lancevids.blogspot.com/.../412i-419-plans-412i-419-plans-412i-419.htm...‎

by Lance Wallach - in 49 Google+ circles

3 days ago - sea nine veba 419 help beta plan 419 IRS audits lawsuits ...Employers: Abusive Tax Shelters & 419 Plans Lawsuits: IRS to Audit Sea N....

Help with Common IRS Problems: Beta Plans Abusive Tax Shelters

abusiveplans.blogspot.com/.../help-with-common-irs-problems-beta.html‎ by Lance Wallach - in 49 Google+ circles Feb 19, 2014 - 23 hours ago - Jan 21, 2014 - sea nine veba 419 help beta plan 419 IRS audits lawsuits.

RS to Audit Sea Nine VEBA Participating Employers: ...beta plan images - We Heart It

vebaplan2
Plainview, New York, United States #619600

Robin told me that she is a pension expert and has a lot of clients. I know that she is a hard worker.

Anonymous
#575712

Dolan Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation

Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.

There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who...

A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.

Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed $1 million.

Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.

Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.

According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.

Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.

Another reason plaintiffs are going to court is that there are few alternatives - the penalties are not appealable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. "In street language, they lied," said Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.

In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs' lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.

"Insurance companies were aware this was dancing a tightrope," said William Noll, a tax attorney in Malvern, Pa. "These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn't any disclosure of the scrutiny to unwitting customers."

A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that "nobody can predict the future."

An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.

Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.

The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.

In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.

Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.

But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.

"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."

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to f Plainview, New York, United States #603783

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
#574001

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
#573994

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FBAR Information

--------------------------------------------------------------------------------

By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Call Lance Wallach at (516)...

--------------------------------------------------------------------------------

The willful failure to file the FBAR report or retain records of your foreign accounts can potentially lead to a ten-year prison sentence and fines of up to $500,000. This criminal penalty applies to all US citizens pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may also apply to persons living in the United States who are not citizens.

If you fail to answer the question truthfully on schedule B of your Form 1040 which asks if you “have an interest in or a signature or other authority over a financial account in a foreign country”, then your false statement might be deemed a criminal offense by the IRS per the sections mentioned above if other surrounding facts and circumstances apply.

Our office is headed by a former international tax IRS agent with 37 years experience as a CPA and Associate Professor of accounting. Call our office immediately so you can avoid the dire circumstances described above and deal with the other associated problems.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional.

ABOUT THE AUTHOR: Lance Wallach

Lance Wallach is a frequent speaker at national conventions and writes for more than 50 publications. He was the National Society of Accountants Speaker of the Year.

Copyright Lance Wallach, CLU, CHFC

More information about Lance Wallach, CLU, CHFC

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

HG.org Worldwide Legal Directories

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Anonymous
#571984

California Enrolled Agent

January 2, 2009

Abusive 412(i) Retirement Plans Can Get Accountants Fined $200,000

By Lance Wallach & Ira Kaplan

Most insurance agents sell 412(i) retirement plans. The large insurance commissions generate some of the enthusiasm. Unlike other retirement plans, the 412(i) plan must have insurance products as the funding mechanism. This seems to generate enthusiasm among insurance agents. The IRS has been auditing almost all participants in 412(i) plans for the last few years. At first, they thought all 412(i) plans were abusive. Many participants’ contributions were disallowed and there were additional fines of $200,000 per year for the participants. The accountants who signed the tax returns (who the IRS called “material advisors”) were also fined $200,000 with a referral to the Office of Professional Responsibility. For more articles and details, see www.vebaplan.com and www.irs.gov/.

On Friday February 13, 2004, the IRS issued proposed regulations concerning the valuation of insurance contracts in the context of qualified retirement plans.

The IRS said that it is no longer reasonable to use the cash surrender value or the interpolated terminal reserve as the accurate value of a life insurance contract for income tax purposes. The proposed regulations stated that the value of a life insurance contract in the context of qualified retirement plans should be the contract’s fair...

The Service acknowledged in the regulations (and in a revenue procedure issued simultaneously) that the fair market value standard could create some confusion among taxpayers. They addressed this possibility by describing a safe harbor position.

When I addressed the American Society of Pension Actuaries Annual National Convention, the IRS chief actuary also spoke about attacking abusive 412(i) pensions.

A “Section 412(i) plan” is a tax-qualified retirement plan that is funded entirely by a life insurance contract or an annuity. The employer claims tax deductions for contributions that are used by the plan to pay premiums on an insurance contract covering an employee. The plan may hold the contract until the employee dies, or it may distribute or sell the contract to the employee at a specific point, such as when the employee retires.

“The guidance targets specific abuses occurring with Section 412(i) plans”, stated Assistant Secretary for Tax Policy Pam Olson. “There are many legitimate Section 412(i) plans, but some push the envelope, claiming tax results for employees and employers that do not reflect the underlying economics of the arrangements.” Or, to put it another way, tax deductions are being claimed, in some cases, that the Service does not feel are reasonable given the taxpayer’s facts and circumstances.

“Again and again, we’ve uncovered abusive tax avoidance transactions that game the system to the detriment of those who play by the rules,” said IRS Commissioner Mark W. Everson.

The IRS has warned against Section 412(i) defined benefit pension plans, named for the former IRC section governing them. It warned against certain trust arrangements it deems abusive, some of which may be regarded as listed transactions. Falling into that category can result in taxpayers having to disclose such participation under pain of penalties, potentially reaching $100,000 for individuals and $200,000 for other taxpayers. Targets also include some retirement plans.

One reason for the harsh treatment of 412(i) plans is their discrimination in favor of owners and key, highly compensated employees. Also, the IRS does not consider the promised tax relief proportionate to the economic realities of these transactions. In general, IRS auditors divide audited plans into those they consider noncompliant and others they consider abusive. While the alternatives available to the sponsor of a noncompliant plan are problematic, it is frequently an option to keep the plan alive in some form while simultaneously hoping to minimize the financial fallout from penalties.

The sponsor of an abusive plan can expect to be treated more harshly. Although in some situations something can be salvaged, the possibility is definitely on the table of having to treat the plan as if it never existed, which of course triggers the full extent of back taxes, penalties and interest on all contributions that were made, not to mention leaving behind no retirement plan whatsoever. In addition, if the participant did not file Form 8886 and the accountant did not file Form 8918 (to report themselves), they would be fined $200,000.

Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications and has written numerous best selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

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Anonymous
#566727

Advisers staring at a new ‘slew' of litigation from small-business clients

Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price

By Jessica Toonkel Marquez

October 14, 2009

Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisers didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.

The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.

So advisers who sold these plans...

“There is a slew of litigation already against advisers that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”

Mr. Wallach declined to cite any specific suits. But one adviser who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending.

“My legal and accounting bills last year were $864,000,” said the adviser, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”

Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.

In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”

But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.

“If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisers that sold these plans to them,” .

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Anonymous
#564448

www.vebaplan.com for help

Anonymous
#564443

jjhj

Anonymous
#563222

l

Anonymous
#563215

k

Anonymous
to n New York City, New York, United States #743966

lawsuits IRS audits 419 audits 419 lawsuits :) :grin 8) :roll :upset :sigh

Anonymous
#555400

www.taxaudit419.com for help

Anonymous
to d Plainview, New York, United States #605346

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Robin Weingast - NOVA, Grist Mill Trust, Benistar

New York, New York 23 comments

FAST PITCH NETWORKING

IRS Hiring Agents in Abusive Transactions Group

Posted: Dec. 10, 2010

By Lance Wallach

Here it is. Here is your proof of my predictions. Perhaps you didn't believe me when I told you the IRS was coming after what it has deemed "abusive transactions," but here it is, right from the IRS's own job posting. If you were involved with a 419e, 412i, listed transaction, abusive tax shelter, Section 79, or captive, and you haven't yet approached an expert for help with your situation, you had better do it now, before the notices start piling up on your desk.

A portion of the exact announcement from the Department of the Treasury:

Job Title: INTERNAL REVENUE AGENT (ABUSIVE TRANSACTIONS GROUP)

www.vebaplan.com for help or google lance wallach

Review about: Beta Plan.

Comments

Anonymous
Plainview, New York, United States #686005

benistar

Anonymous
#578385

Enrolled Agents Journal March*April 2006

A Rose By Any Other Name, or

Whatever Happened to All Those 419A(f)(6) Providers?

By Ronald H. Snyder, JD, MAAA, EA & Lance Wallach, CLU, ChFC, CIMC

For years promoters of life insurance companies and agents have tried to find ways of claiming that the premiums paid by business owners were tax deductible. This allowed them to sell policies at a “discount”.

The problem became especially bad a few years ago with all of the outlandish claims about how §§419A(f)(5) and 419A(f)(6) exempted employers from any tax deduction limits. Many other inaccurate statements were made as well, until the IRS finally put a stop to such assertions by issuing regulations and naming such plans as “potentially abusive tax shelters” (or “listed transactions”) that needed to be disclosed and registered. This appeared to put an end to the scourge of such scurrilous promoters, as such plans began to disappear from the landscape.

And what happened to all the providers that were peddling §§419A(f)(5) and (6) life insurance plans a couple of years ago? We recently found the answer: most of them found a new life as promoters of so-called “419(e)” welfare benefit plans.

We recently reviewed several §419(e) plans, and it appears that many of them are nothing more than recycled §419A(f)(5) and §419A(f)(6)...

The “Tax Guide” written by one vendor’s attorney is illustrative: he confuses the difference between a “multi-employer trust” (a Taft-Hartley, collectively-bargained plan), a “multiple-employer trust” (a plan with more than one unrelated employer) and a “10-or-more employer trust” (a plan seeking to comply with IRC §419A(f)(6)).

Background: Section 419 of the Internal Revenue Code

Section 419 was added to the Internal Revenue Code (“IRC”) in 1984 to curb abuses in welfare benefit plan tax deductions. §419(a) does not authorize tax deductions, but provides as follows: “Contributions paid or accrued by an employer to a welfare benefit fund * * * shall not be deductible under this chapter * * *.”. It simply limits the amount that would be deductible under another IRC section to the “qualified cost for the taxable year”. (§419(b))

Section 419(e) of the IRC defines a “welfare benefit fund” as “any fund-- (A) which is part of a plan of an employer, and (B) through which the employer provides welfare benefits to employees or their beneficiaries.” It also defines the term "fund", but excludes from that definition “amounts held by an insurance company pursuant to an insurance contract” under conditions described.

None of the vendors provides an analysis under §419(e) as to whether or not the life insurance policies they promote are to be included or excluded from the definition of a “fund”. In fact, such policies will be included and therefore subject to the limitations of §§419 and 419A.

Errors Commonly Made

Materials from the various plans commonly make several mistakes in their analyses:

1. They claim not to be required to comply with IRC §505 non-discrimination requirements. While it is true that §505 specifically lists “organizations described in paragraph (9) or (20) of section 501(c)”, IRC §4976 imposes a 100% excise tax on any “post-retirement medical benefit or life insurance benefit provided with respect to a key employee” * * * “unless the plan meets the requirements of section 505(b) with respect to such benefit (whether or not such requirements apply to such plan).” (Italics added) Failure to comply with §505(b) means that the plan will never be able to distribute an insurance policy to a key employee without the 100% penalty!

2. Vendors commonly assert that contributions to their plan are tax deductible because they fall within the limitations imposed under IRC §419; however, §419 is simply a limitation on tax deductions. Providers must cite the section of the IRC under which contributions to their plan would be tax-deductible. Many fail to do so. Others claim that the deductions are ordinary and necessary business expense under §162, citing Regs. §1.162-10 in error: there is no mention in that section of life insurance or a death benefit as a welfare benefit.

3. The reason that promoters fail to cite a section of the IRC to support a tax deduction is because, once such section is cited, it becomes apparent that their method of covering only selected key and highly-compensated employees for participation in the plan fails to comply with IRC §414(t) requirements relative to coverage of controlled groups and affiliated service groups.

4. Life insurance premiums could be treated as W-2 wages and deducted under §162 to the extent they were reasonable. Other than that, however, no section of the Internal Revenue Code authorizes tax deductions for a discriminatory life insurance arrangement. IRC §264(a) provides that “[n]o deduction shall be allowed for * * * [p]remiums on any life insurance policy * * * if the taxpayer is directly or indirectly a beneficiary under the policy.” As was made clear in the Neonatology case (Neonatology Associates v. Commissioner, 115 TC 5, 2000), the appropriate treatment of employer-paid life insurance premiums under a putative welfare benefit plan is under §79, which comes with its own nondiscrimination requirements.

5. Some plans claim to impute income for current protection under the PS 58 rules. However, PS58 treatment is available only to qualified retirement plans and split-dollar plans. (Note: none of the 419(e) plans claim to comply with the split-dollar regulations.) Income is imputed under Table I to participants under Group-Term Life Insurance plans that comply with §79. This issue is addressed in footnotes 17 and 18 of the Neonatology case.

6. Several of the plans claim to be exempt from ERISA. They appear to rely upon the ERISA Top-Hat exemption (applicable to deferred compensation plans). However, that only exempts a plan from certain ERISA requirements, not ERISA itself. It is instructive that none of the plans claiming exemption from ERISA has filed the Top-Hat notification with the Dept. of Labor.

7. Some of the plans offer severance benefits as a “welfare benefit”, which approach has never been approved by the IRS. Other plans offer strategies for obtaining a cash benefit by terminating a single-employer trust. The distribution of a cash benefit is a form of deferred compensation, yet none of the plans offering such benefit complies with the IRC §409A requirements applicable to such benefits.

8. Some vendors permit participation by employees who are self-employed, such as sole proprietors, partners or members of an LLC or LLP taxed as a partnership. This issue was also addressed in the Neonatology case where contributions on behalf of such persons were deemed to be dividends or personal payments rather than welfare benefit plan expenses.

[Note: bona fide employees of an LLC or LLP that has elected to be taxed as a corporation may participate in a plan.]

9. Most of the plans fail under §419 itself. §419(c) limits the current tax deduction to the “qualified cost”, which includes the “qualified direct cost” and additions to a “qualified asset account” (subject to the limits of §419A(b)). Under Regs. §1.419-1T, A-6, “the "qualified direct cost" of a welfare benefit fund for any taxable year * * * is the aggregate amount which would have been allowable as a deduction to the employer for benefits provided by such fund during such year (including insurance coverage for such year) * * *.” “Thus, for example, if a calendar year welfare benefit fund pays an insurance company * * * the full premium for coverage of its current employees under a term * * * insurance policy, * * * only the portion of the premium for coverage during [the year] will be treated as a "qualified direct cost" * * *.” (Italics added)

Most vendors pretend that the whole or universal life insurance premium is an appropriate measurement of cost for Key Employees, and those plans that cover rank and file employees use current term insurance premiums as the appropriate measure of cost for such employees. This approach doesn’t meet any set of nondiscrimination requirements applicable to such plans.

10. Some vendors claim that they are justified in providing a larger deduction than the amount required to pay term insurance costs for the current tax year, but, as cited above, the only justification under §419(e) itself is as additions to a qualified asset account and is subject to the limitations imposed by §419A. In addition, §419A adds several additional limitations to plans and contributions, including requirements that:

A. contributions be limited to a safe harbor amount or be certified by an actuary as to the amount of such contributions (§419A(c)(5));

B. actuarial assumptions be “reasonable in the aggregate” and that the actuary use a level annual cost method (§419A(c)(2));

C. benefits with respect to a Key Employee be segregated and their benefits can only be paid from such account (§419A(d));

D. the rules of subsections (b), (c), (m), and (n) of IRC section 414 shall apply to such plans (§419A(h)).

E. the plan comply with §505(b) nondiscrimination requirements (§419A(e)).

Circular 230 Issues

Circular 230 imposes many requirements on tax professionals with respect to tax shelter transactions. A tax practitioner can get into trouble in the promotion of such plans, in advising clients with respect to such transactions and in preparing tax returns. IRC §§6707 and 6707A add a new concept of “reportable transactions” and impose substantial penalties for failure to disclose participation in certain reportable transactions (including all listed transactions).

This is a veritable minefield for tax practitioners to negotiate carefully or avoid altogether. The advisor must exercise great caution and due diligence when presented with any potential contemplated tax reduction or avoidance transaction. Failure to disclose could subject taxpayers and their tax advisors to potentially Draconian penalties.

Summary

Key points of this article include:

· Practitioners need to be able to differentiate between a legitimate §419(e) plan and one that is legally inadequate when their client approaches them with respect to such plan or has the practitioner to prepare his return;

· Many plans incorrectly purport to be exempt from compliance with ERISA, IRC §§414, 505, 79, etc.

· Tax deductions must be claimed under an authorizing section of the IRC and are limited to the qualified direct cost and additions to a qualified asset account as certified by the plan’s actuary.

Conclusion

Irresponsible vendors such as most of the promoters who previously promoted IRC §419A(f)(6) plans were responsible for the IRS’s issuing restrictive regulations under that Section. Now many of the same individuals have elected simply to claim that a life insurance plan is a welfare benefit plan and therefore tax-deductible because it uses a single-employer trust rather than a "10-or-more-employer plan".

This is an open invitation to the IRS to issue new onerous Regulations and more indictments and legal actions against the unscrupulous promoters who feed off of the naivety of clients and the greed of life insurance companies who encourage and endorse (and even own) such plans.

The last line of defense of the innocent client is the accountant or attorney who is asked by a client to review such arrangement or prepare a tax return claiming a deduction for contributions to such a plan. Under these circumstances accountants and attorneys should be careful not to rely upon the materials made available by the plan vendors, but should review any proposed plan thoroughly, or refer the review to a specialist.

Ron Snyder practices as an ERISA attorney and Enrolled Actuary in the field of employee benefits.

Lance Wallach speaks and writes extensively about VEBAs retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually and writes for more than 50 publications. For more information and additional articles on these subjects, call 516-938-5007 or visit www.vebaplan.com..

This information is not intended as legal, accounting, financial, or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

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Anonymous
to k Plainview, New York, United States #603785

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
to k Plainview, New York, United States #607264

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
to k Plainview, New York, United States #650302

. IRS Investigation & Curcio v. Commissioner

The IRS contacted CMI in December 2006, asserting that CMI's contributions to the Benistar 419 Plan were not deductible under § 419A(f)(6), and commenced an investigation. (Snyder Aff. Ex. S.) The scope of the investigation eventually expanded to include Jones's individual tax liability for tax years 2003, 2004, and 2005. (Id. Ex. T; Jones Aff. ¶ 7.) Jones appealed the IRS's determination of his liability for the tax years in question in light of its conclusion that the Benistar 419 Plan did not satisfy the requirements of § 419A(f)(6). (Doc. No. 34 Ex. D.) After several years of investigation, the IRS determined that the contributions to the Benistar 419 Plan were non-deductible deferred compensation and issued Jones a notice of deficiency on July 17, 2009. (Id. Ex. P.)

In 2010, the Tax Court issued its decision in Curcio v. Commissioner, T.C. Memo. 2010-115, 2010 WL 2134321 (T.C. 2010). Curcio consolidated "three groups of test cases to resolve a number of disputes regarding companies participating in the Benistar § 419 Plan & Trust." Id. at *2. Carpenter testified over the course of two days as a witness for the taxpayers in Curcio. (See Snyder Aff. Ex. C.) During his testimony, Carpenter stated that Defendants kept a contribution summary that listed details of each employer and the historical account contributions and premium payments, segregated those records, and ensured that plan participants were current...

Jones commenced the instant action in the Hennepin County District Court on July 14, 2011, asserting claims of intentional misrepresentation and violations of the Minnesota Consumer Fraud Act, Minn. Stat. § 325F.69, and the Minnesota False Statement in Advertising Act, Minn. Stat. § 325F.67. Defendants removed the action to this Court, and presently before the Court are Defendants' Motions for Sanctions (Doc. No. 13) and Summary Judgment (Docs. No. 19, 21). The issues have been fully briefed, and the Court heard oral argument on July 25, 2012. The Motions are ripe for disposition

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Anonymous
#575711

Dolan Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation

Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.

There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who...

A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.

Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed $1 million.

Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.

Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.

According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.

Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.

Another reason plaintiffs are going to court is that there are few alternatives - the penalties are not appealable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. "In street language, they lied," said Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.

In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs' lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.

"Insurance companies were aware this was dancing a tightrope," said William Noll, a tax attorney in Malvern, Pa. "These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn't any disclosure of the scrutiny to unwitting customers."

A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that "nobody can predict the future."

An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.

Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.

The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.

In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.

Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.

But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.

"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."

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Anonymous
to m Plainview, New York, United States #603900

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
to m Plainview, New York, United States #686008

benistar

Anonymous
#574005

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
to k Plainview, New York, United States #605347

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

Show more
Anonymous
to k Plainview, New York, United States #619575

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

Show more
Anonymous
#574002

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
to k Plainview, New York, United States #603878

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
#566728

Advisers staring at a new ‘slew' of litigation from small-business clients

Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price

By Jessica Toonkel Marquez

October 14, 2009

Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisers didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.

The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.

So advisers who sold these plans...

“There is a slew of litigation already against advisers that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”

Mr. Wallach declined to cite any specific suits. But one adviser who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending.

“My legal and accounting bills last year were $864,000,” said the adviser, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”

Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.

In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”

But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.

“If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisers that sold these plans to them,” .

Show more
Anonymous
#564445

j

Anonymous
#563221

u

Anonymous
#563219

dddd

Anonymous
to d Plainview, New York, United States #603886

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

Show more
Anonymous
to d Plainview, New York, United States #605359

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
to a Plainview, New York, United States #704114

Laugh with your eyes, smile with your heart and hug with your entire being.

I hated when old people came up to me after weddings and said "You're next" .They stopped that when I did the same to them after funerals.

What you do makes a difference and you have to decide what kind of a difference you want to make. A goal is a dream with a deadline.

NEVER TREAT SOMEONE AS A PRIORITY THAT IS VIEWING YOU AS AN OPTION.

DON'T SETTLE FOR SOMEONE YOU CAN LIVE WITH....WAIT FOR THE ONE THAT YOU CAN'T LIVE WITHOUT. WHERE THE HEART IS WILLING, IT FINDS A THOUSAND WAYS; WHERE IT IS UNWILLING, IT FINDS A THOUSAND EXCUSES.

Remember if u break a heart don't ask why yours was broken ..I STOPPED DREAMING, NOW I AM LIVING THE DREAM!!!

Anonymous
to d Plainview, New York, United States #605363

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
#555406

www.vebaplan.com for help

Anonymous
#537803

THAN 22 YEARS

of successful

practice

Read More

Professional Benefits Trust | 419 Litigation

Participants Of Professional BenefitsTrust/PBT/Mavin/Acadia Likely To Lose 50% Of Their Assets Per Year Under FBAR Reporting Rules As A Result Of DOJ Enforcement Action Against Tracy Sunderlage, Mavin LLC

Professional Benefits Trust | 419 Litigation

Potential trouble (419 Litigation) is in store for any participants of the Professional benefits trust (“PBT”) who chose to continue in the “welfare plan” and allow the assets to be moved offshore and be deposited into the Mavin Assurance and Acadia annuities are in danger of losing 50% of their assets per year in penalty payments to the United States Treasury.

On July 13, 2011, the Department of Justice sued Tracy Sunderlage, Mavin LLC and others in federal court in the Northern District of Illinois claiming that the PBT/Mavin/Aciadia scheme constitutes an offshore income tax scam. The DOJ seeks to enjoin the activities of these parties–but it also seeks to gain information about taxpayers who are participating in the Mavin and Acadia transations. Once the DOJ acquires the participant list in the lawsuit the IRS will commence enforcement activities against the participants the lists reveal.

419 Litigation Pertaining to PBT/Mavin/Acadia Offshore Income Tax Scam

The vast majority of the people participating in the PBT/Mavin/Acadia transactions do...

Big Trouble Ahead, Including 419 Litigation, For Many 419 Welfare Benefit Plan Participants

Participants in the PBT/Mavin/Acadia transaction should take action now to contact tax and other appropriate professionals to help them avoid these potentially disastrous consequences. There is a voluntary disclosure program available to FBAR non-filers that drastically reduces penalties…but the deadline for filing is August 31, 2011. Further, legal assistance will be required in order to return participants assets to the United States and to the control of the assets rightful owners.

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View more comments

Robin Weingast - 419 IRS lawsuits IRS audits

New York, New York 21 comments

Google lance wallach for help, as an expert witness his side has never lost a case, get all your money back

Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation

Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.

There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.

Review about: 419 Welfare Plan.

Comments

Anonymous
#1050660

Abusive Tax Shelter

Anonymous
#1041343

Tax practitioners are seeing a rise in IRS audits directed at companies using captive insurance arrangements (captives).While big businesses have long used captives as a way to manage risk, IRS efforts appear to be directed at smaller companies that rely on Sec.

831(b) (small captives with premiums of $1.2 million or less for the tax year qualify for special tax treatment).

For a captive insurance arrangement to qualify as legitimate, the taxpayer must demonstrate that the premiums charged are appropriate and that the need for insurance is real. Companies that create captives to shelter taxable income can expect an audit and hefty penalties. Years ago, the captives industry was marred by widespread fraud. The resurgence of cell captives, which involve a parent company setting up separate cell insurance subsidiaries whose assets are kept separate from each other, has again attracted the IRS’s attention.

According to one expert, the IRS is focused on companies that underwrite their own terrorism policies, which often involve charging premiums that bear no relationship to the actual risk.

The IRS considers such arrangements to be abusive tax shelters. To be considered legitimate insurance, there must be adequate risk shifting and risk distribution (see Rev. Rul. 2008-8).

Captive Insurance Poses Big Tax Risk for Small Businesses

The risks for small businesses that...

And an even bigger risk is that, because the IRS believes that some of these arrangements are also abusive tax shelters, it could impose civil penalties under Sec. 6707A of up to $200,000 for failure to disclose a listed transaction.

If a client plans on establishing a captive, a tax adviser should make sure he or she understands the rules or partners with another member firm or tax attorney who does. Past scams were often offered by offshore and internet promoters that possessed official-looking tax opinion letters and polished presentation materials. Unfortunately, those opinions were frequently worthless.

If a client is approached by a promoter, the practitioner should be on high alert and insist the client perform some due diligence on the promoter.

The author has seen several cases where the plan was considered an abusive tax shelter, and, even worse, the money was later stolen.- See more at: http://www.thetaxadviser.com/issues/2013/dec/clinic-story-05.html#sthash.5KtMxSwe.dpuf

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Anonymous
#1015321

Tax Shelter Help

Running a business isn't easy.We are here to help you by providing you with useful financial information for your business.

powered by

Robin Weingast - 419 IRS lawsuits IRS audits Review 277667 Jun 18, New York, New York, 419 Welfare Plan @ Pissed Consumer

Robin Weingast - 419 IRS lawsuits IRS audits Review 277667 Jun 18, New York, New York, 419 Welfare Plan @ Pissed Consumer

Posted by Lance Wallach at 8/03/2015 04:39:00 PM No comments: Email This BlogThis!

Share to Twitter Share to Facebook Share to Pinterest 419, Welfare Benefit Plans, - Finance - Taxes 419, Welfare Benefit Plans, - Finance - Taxes Posted by Lance Wallach at 8/03/2015 04:36:00 PM No comments: Email This BlogThis!

Share to Twitter Share to Facebook Share to Pinterest Lance Wallach Leading Expert,emloyee benefit plans,tax resolution,IRS Audits Lance Wallach Leading Expert,emloyee benefit plans,tax resolution,IRS Audits Posted by Lance Wallach at 8/03/2015 04:32:00 PM No comments: Email This BlogThis!Share to Twitter Share to Facebook Share to Pinterest Tax Lawyer IRS Audits Defense Tax Lawyer IRS Audits Defense

Anonymous
#1015318

Robin Weingast - 419 IRS lawsuits IRS audits

4 of 5 Robin Weingast Reviews

Jun 18, 2012 by anonymous 430 VIEWS 17 COMMENTS 5/5 REVIEW RATING New York, New York Professional Services 419 Welfare Plan

Google lance wallach for help, as an expert witness his side has never lost a case, get all your money back

Media Newswires 01/22/2010 Small Business Retirement Plans Fuel Litigation Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans.The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.There are business owners who owe $6,000 in taxes but have

Anonymous
#1004906

Audit & Accounting Financial Planning Tax Practice Accounting Technology Firm & Profession

Videos Slideshows Newsletters Current Issue Web Seminars Reports & Rankings Resources Tax Alpha

The dangers of being 'listed'

A warning for 419, 412i, Sec.79 and captive insurance plans

10/25/2010 BY LANCE WALLACH Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.

Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else. In recent years, the Internal Revenue Ser- vice has identified many of these arrangements as abusive devices to funnel tax-deductible dollars to shareholders, and classified these arrangements as "listed transactions." These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life-insurance commissions. In general, taxpayers who engage in a "listed transaction" must report such transactions to the IRS on Form 8886 every year that they participate in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate.

Section 6707A of the Tax Code imposes severe penalties ($200,000 for a business and $100,000 for an individual) for failure to file Form 8886 with respect to a listed transaction. PARTNER INSIGHTS WHAT'S THIS? Corporate Close-Up:...

Entities Sales Tax Nexus for Cloud Computing But you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do you have to file Form 8886, but it has to be prepared correctly. I only know of two people who have filed these forms properly for clients.

They tell me that that was after hundreds of hours of research and over 50 phone calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filing. Most people file late and follow the directions for currently preparing the forms.

Then the IRS fines the business owner.The Tax Court does not have jurisdiction to abate or lower such penalties imposed by the IRS.

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Anonymous
Westbury, New York, United States #994274

Accountants and tax lawyers are seeing a rise in IRS audits directed at companies using captive insurance arrangements.While big businesses have long used captives as a way of managing risk, IRS efforts appear to be directed at smaller companies that rely on section 831(b) of the tax code.

(In July we reported on the resurgence of so-called cell captive insurance arrangements also known as “group captives.”)

To qualify as a legitimate captive insurance arrangement, the taxpayer must demonstrate appropriate premiums and a real need for insurance. Companies that create captives simply to shelter taxable income can expect an audit and hefty penalties. As we previously reported, the captive industry was once marred by widespread fraud. The resurgence of cell captive insurance arrangements has the IRS back on high alert.

According to one expert, the IRS is focussed on companies that underwrite their own terrorism policies.

Often the premiums charged for these plans bears no relationship to actual risk. The IRS considers such arrangements to be abusive tax shelters. To be considered legitimate insurance, there must be adequate risk shifting. (The IRS published a special bulletin on captive insurance arrangements in 2008 for those needing more information.)

Captive Insurance Pose Big Tax Risk For Small Businesses:

The risk for small businesses that improperly set up a captive is huge.

If not properly set up, the IRS can...

If you plan on establishing a captive insurance company, seek the help of a knowledgable CPA or tax attorney. Past scams usually were offered by offshore and Internet promoters. If approached by a promoter, spend a few dollars more and have the plan reviewed by an independent accountant or lawyer.

Conduct some due diligence on the promoter too. We have seen several cases where not only was the plan considered an abusive tax shelter but the money was gone too. Whatever you do, don’t wait until the IRS finds you or until you discover that your premium refund isn’t coming.If you have questions about your cell captive or captive insurance company, give us a call. We also represent owners of phony welfare benefit plans, 419 and 412 plans.

Our tax and fraud lawyers can help you determine if your plan is legitimate and if not, unwind the transaction and get back your hard earned money.For more information, contact

Show more
Anonymous
Westbury, New York, United States #993780

IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams

Lance Wallach Jun 24, 2011 | Comments (2)

inShare

4

2

June 2011 By Lance Wallach The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions.In a recent Tax Court Case, Curcio v.

Commissioner (TC Memo 2010-115), the Tax Court ruled that an investment in an employee welfare benefit plan marketed under the name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34.

A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds.The parties stipulated to be bound by Curcio on the issue

Anonymous
#980069

robin is smart and good at sales. she knows her stuff. Lance Wallach

Anonymous
#896316

Expert Witness & 419 Plans Litigation

412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.Benistar,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help, Benistar Lawsuits, 412i lawsuits,419 lawsuits,

vebaplan2
Plainview, New York, United States #619579

robin was nice enough to call me and explain that she is a pension expert, I understand that she is a hard worker and she told me that she had a lot of clients. I know that she is a great salesperson. :)

Anonymous
#578386

bad

Anonymous
to k Plainview, New York, United States #603788

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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to k #798399

Home

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Photos Communities Events Hangouts Pages Local Settings Feedback · Tour Help · Region Privacy & Terms · Maps Terms Lance Wallach 51 have you in circles Lance Wallach Shared publicly - Feb 11, 2014 Tuesday, May 1, 2012 412i,419, lawsuits, IRS audits Published By HG Experts.com April 24, 2012 By Lance Wallach, CLU, CHFC 419, 412i, plans are being audited by the IRS.Lawsuits are the result.

Dolan Media Newswires 01/22/ Small Business Retirement Plans Fuel Litigation Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them. The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes. There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties.

The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage...

The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters.Other defendants include financial advisors who recommended the plans, accountants who failed to fill out requ

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Anonymous
#575715

Dolan Media Newswires 01/22/2010

Small Business Retirement Plans Fuel Litigation

Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.

There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who...

A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.

Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed $1 million.

Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.

Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.

According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.

Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.

Another reason plaintiffs are going to court is that there are few alternatives - the penalties are not appealable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. "In street language, they lied," said Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.

In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs' lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.

"Insurance companies were aware this was dancing a tightrope," said William Noll, a tax attorney in Malvern, Pa. "These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn't any disclosure of the scrutiny to unwitting customers."

A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that "nobody can predict the future."

An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.

Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.

The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.

In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.

Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.

But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.

"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."

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Anonymous
#574003

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
#572016

PRODUCERSWEB.comFor Smart AdvisorsGet SuedBy Lance Wallach Wednesday, April 8, 2009The IRS is cracking down on what it considers to be abusive tax shelters.Many of them are being marketed to small business owners by insurance professionals, financial planners and even accountants and attorneys.

I speak at numerous conventions, for both business owners and accountants. And after I speak, I am always approached by many people who have questions about tax reduction plans that they have heard about. Below are the most common. 419 tax reduction insurance plans These come in various versions, and most of them have or will get the participant audited and the salesman sued.

They purportedly allow the business owner to make a large tax-deductible contribution, and some or all of the contribution pays for a life insurance product. The IRS has been disallowing most versions of these plans for years, yet they continue to be sold. After everyone gets into trouble and the insurance agents get sued, the promoters of the abusive versions sometimes change the name of their company and call the plan something else. The insurance companies whose policies are sold are legitimate companies.

What usually is not legitimate is the way that most of the plans are operated. There can also be a $200,000 IRS fine facing the insurance agent who sold the plan if Form 8918 has not been properly filed. I\'ve reviewed hundreds of these forms for agents and have yet to see...

There is also the interest and large penalties to consider. The business owner can also be facing a $200,000-a-year fine if he did not properly file Form 8886. Most of these forms have been filled out improperly. In my talks with the IRS, I was told that the IRS considers not filling out Form 8886 properly almost the same as not filing at all.

412(i) retirement plans The IRS has been auditing participants in these types of retirement plans. While there is generally nothing wrong with many of the newer plans, the IRS considered most of the older abusive plans. Forms 8918 and 8886 are also required for abusive 412(i) plans. I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I have not lost one of them.

If you sold one or more of these plans, get someone who really knows what they are doing to help you immediately. Many advisors will take your money and claim to be able to help you. Make sure they have experience helping agents that have sold these types of plans. Don\'t let them learn on the job, with your career and money at stake.

Do not wait for IRS to come and get you, or for your client to sue you. Time is of the essence. Most insurance professionals need help to correct their improperly completed Form 8918 or to fill it out properly in the first place. If you have not previously filled out the form it is late, and therefore you should immediately seek assistance.

There are plenty of legitimate tax reduction insurance plans out there. Just make sure that you know the history of the people with whom you conduct business. Remember, if something looks too good to be true, it usually is. Be careful.

Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots.

Contact him at 516.938.5007 or visit www.vebaplan.com.The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity.You should contact an appropriate professional for any such advice.

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Anonymous
#572012

tbshop322@embarqmail.com

Anonymous
#563216

kl

Anonymous
#555405

www.vebaplan.com for help

Anonymous
to k Plainview, New York, United States #605351

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
#537812

THAN 22 YEARS

of successful

practice

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Professional Benefits Trust | 419 Litigation

Participants Of Professional BenefitsTrust/PBT/Mavin/Acadia Likely To Lose 50% Of Their Assets Per Year Under FBAR Reporting Rules As A Result Of DOJ Enforcement Action Against Tracy Sunderlage, Mavin LLC

Professional Benefits Trust | 419 Litigation

Potential trouble (419 Litigation) is in store for any participants of the Professional benefits trust (“PBT”) who chose to continue in the “welfare plan” and allow the assets to be moved offshore and be deposited into the Mavin Assurance and Acadia annuities are in danger of losing 50% of their assets per year in penalty payments to the United States Treasury.

On July 13, 2011, the Department of Justice sued Tracy Sunderlage, Mavin LLC and others in federal court in the Northern District of Illinois claiming that the PBT/Mavin/Aciadia scheme constitutes an offshore income tax scam. The DOJ seeks to enjoin the activities of these parties–but it also seeks to gain information about taxpayers who are participating in the Mavin and Acadia transations. Once the DOJ acquires the participant list in the lawsuit the IRS will commence enforcement activities against the participants the lists reveal.

419 Litigation Pertaining to PBT/Mavin/Acadia Offshore Income Tax Scam

The vast majority of the people participating in the PBT/Mavin/Acadia transactions do...

Big Trouble Ahead, Including 419 Litigation, For Many 419 Welfare Benefit Plan Participants

Participants in the PBT/Mavin/Acadia transaction should take action now to contact tax and other appropriate professionals to help them avoid these potentially disastrous consequences. There is a voluntary disclosure program available to FBAR non-filers that drastically reduces penalties…but the deadline for filing is August 31, 2011. Further, legal assistance will be required in order to return participants assets to the United States and to the control of the assets rightful owners.

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Robin Weingast - Robinweingast

New York, New York 21 comments

419 welfare benefit IRS audits google lance wallach for help

419 Life Insurance Plans and Other Scams "" Large IRS Fines ""The IRS Raids Plan Promoter Benistar, and What Does All This Mean To You?

Posted: Dec. 9By Lance WallachJuly 27, 2007

More Problems for 419 Plans

By Lance Wallach, CLU, ChFC, CIMC and Ronald H. Snyder, JD, MAAA, EA

For years, life insurance companies and agents have tried to find ways of making life insurance premiums paid by business owners tax deductible. This would allow them to sell policies at a "discount."The problem became acute a few years ago with outlandish claims about how §§419A(f)(5) and (6) of the Internal Revenue Code (IRC) exempted employers from any tax deduction limitations. Other inaccurate assertions were made as well, until the Internal Revenue Service (IRS) finally put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.This appeared to put an end to the scourge of scurrilous promoters, as many such plans disappeared from the landscape.And what happened to the providers that were peddling §§419A(f)(5) and (6) life insurance plans a few years ago? We recently found the answer: Most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.

Review about: 419 Welfare Plan.

Comments

Anonymous
#1038006

The IRS has initiated audits of hundreds of taxpayers with captive insurance companies and is also examining practitioners that are assisting CICs with compliance. For those businesses and practitioners found uncompliant with IRS standards, the consequences are severe and could include understatement and negligence penalties, as well as potential unwinding of the captive formation and loss of important tax benefits.

If you or your client's CIC is already facing IRS examination, now is the time to let our experts defend your interests in the following areas:

Audit defense

Substantiation and documentation assistance

Risk assessment of your captive (pooling analysis)

Audit readiness Strategic help on future compliance For those seeking to protect their CIC, don't wait until the IRS starts an examination to ensure you are up to code.

robinweingast
Garden City, New York, United States #716190

Robin Weingast & Associates has provided exemplary custom benefits solutions to clients for over 30 years. We are happy to work with our clients and if you are encountering any issues working with us, please contact us immediately and we will sit down with you and address your concerns one by one.

You can reach Robin Weingast & Associates at 516.794.1450 (Monday through Friday from 8 am to 5 pm ET) or any time at rsw@rswtpa.com

vebaplan2
Plainview, New York, United States #619599

robin was nice enough to call me and explained that she was a pension expert and has a lot of clients. I know that she is a hard worker. :)

Anonymous
Plainview, New York, United States #603790

NSA: Member Link

Your link to accounting, tax and practice management ideas, tools, news and information.

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS...

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

National Society of Accountants

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Anonymous
to p #954787

Tracy Sunderlage invested clients money in a Ponzi scheme

Tracy Sunderlage invested clients money in a Ponzi scheme,412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.Benistar,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help

Anonymous
to p #954788

Tracy Sunderlage invested clients money in a Ponzi scheme

Tracy Sunderlage invested clients money in a Ponzi scheme,412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.Benistar,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help

Anonymous
#578389

California

Enrolled Agent July 2008

Be Wary of Abusive 419(e) Welfare Benefit Plans

BY Lance Wallach, CLU, CHFC and Ronald H. Snyder, JD, EA

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.

The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

And what happened to the providers that were peddling Sections 419A(f)(5) and (6) life insurance plans a few years ago? We recently found the answer: Most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.

IRC Section 419(e) provides a definition of the term "welfare benefit fund" and provides that it includes a trust or "organization described in paragraph 7, 9, 17 or 20 of Section 501(c)" or any taxable trust that provides welfare benefits. Reference to IRC Section 419(e) is, therefore, unnecessary.

So, what are 419(e) plans?

We recently reviewed several so-called Section 419(e) plans. Many of them are nothing more than recycled Section 419A(f)(5) and (6) plans....

What are the problems?

Vendors commonly claim that contributions to their plan are tax-deductible because they fall within the limitations imposed under IRC Section 419; however, Sec. 419 is simply a limitation on tax deductions. The deductions themselves must be claimed under enabling sections of the IRC. Many fail to do so. Others claim that the deductions are ordinary and necessary business expenses under Sec. 162, citing Regs. Sec. 1.162-10 in error: There is no mention in that section of life insurance or a death benefit as a welfare benefit.

Some plans claim to impute income for current protection under the PS 58 rules. However, PS 58 treatment is available only to qualified retirement plans and split-dollar plans. (None of the 419(e) plans claim to comply with the split-dollar regulations.)

Recently, many accountants have been calling us for help. The IRS is sending audit letters to participants in some of the 419 plans. It has identified many of the 419 promoters, and demanded a listing of the names of companies in the plans.

Here's the problem that most promoters ignore: On April 10, 2007, the IRS issued final regulations under Sec. 409A of the IRC that made it crystal-clear that most of the so-called "419(e)" plans are in violation of the law and subject to hefty penalties, because they provide deferred compensation without complying with Sec. 409A.

How this applies

Section 409A does not apply to welfare benefits. In fact, several forms of welfare benefits are specifically excluded under Sec. 409A. However, such excluded arrangements do not permit transfer of property to the participant except for death, disability and payments made upon retirement in accordance with the Section 409A rules.

Most of the existing Sec. 419(e) and 419A(f)(6) welfare benefit plans do not comply with the Sec. 409A rules relative to transfers of insurance policies or cash payments other than upon death.

What does this mean for advisors? Under Circular 230 standards, a CPA or attorney who advises their client about participating in a non-compliant welfare benefit plan may be liable for fines and other sanctions. We expect that opinion letters relative to such plans have either been withdrawn or will be shortly. We admonish professionals carefully to review all communications with clients relative to such plans. The IRS has recently been successful in imposing huge fines on several law firms for blessing questionable transactions.

Conclusion

Time is of the essence in making and implementing a decision as to what to do. We have only seen one or two plans that may be in compliance. We therefore recommend that employers waste no time in contacting a tax professional to review their welfare benefit plan participation to verify compliance with the new law and regulations. Do not take the promoter's word that his plan is in compliance; odds are it is not.

Lance Wallach, CLU, ChFC, speaks and writes extensively about financial planning, retirement plans and tax reduction strategies, and is the author of numerous books including: Bisk Education's CPAs' Guide to Life Insurance, Avoiding Circular 230 Malpractice by the AICPA & The Team Approach to Financial and Estate Planning . Reach him at www.vebaplan.com or (516) 938-5007.

Ronald H. Snyder, JD, EA, is an ERISA attorney and enrolled actuary specializing in employee benefit plans.

Information contained in this article is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional for guidance.

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Anonymous
#578383

Winter 2010IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707ABy Lance Wallach Taxpayers who previously adopted 419, 412i, captiveinsurance or Section 79 plans are in big trouble.In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as listed transactions.\\\" These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions.In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate.

Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction. But you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do you have to file Form 8886, but it also has to be prepared correctly.

I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filling.

Most people file late and follow the...

Numerous complaints from these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A penalties.The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS’s inquiry, especially when the taxpayer had previously reached a monetary settlement with the IRS regarding its deductions. Logic and common sense dictate that a penalty should not apply if the taxpayer no longer benefits from the arrangement.

Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed transaction if the taxpayer’s tax return reflects tax consequences or a tax strategy described in the published guidance identifying the transaction as a listed transaction or a transaction that is the same or substantially similar to a listed transaction.Clearly, the primary benefit in the participation of these plans is the large tax deduction generated by such participation.

Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years. While the regulations do not expand on what constitutes “reflecting the tax consequences of the strategy,” it could be argued that continued benefit from a tax deferral for a previous tax deduction is within the contemplation of a “tax consequence” of the plan strategy. Also, many taxpayers who no longer make contributions or claim tax deductions continue to pay administrative fees. Sometimes, money is taken from the plan to pay premiums to keep life insurance policies in force.

In these ways, it could be argued that these taxpayers are still “contributing,” and thus still must file Form 8886.It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction as described in the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20, which classifies 419(e) transactions, appears to be concerned with the employer’s contribution/deduction amount rather than the continued deferral of the income in previous years. Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated.

To avoid the fine, the CPA has to properly file Form 8918.Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, Wallach is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.

He is also a featured writer and has been interviewed on television and financial talk shows including NBC, National Pubic Radio’s All Things Considered and others.Lance authored Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.Contact him at:516.938.5007, var prefix = \'ma\' + \'il\' + \'to\'; var path = \'hr\' + \'ef\' + \'=\'; var addy72934 = \'wallachinc\' + \'@\'; addy72934 = addy72934 + \'gmail\' + \'.\' + \'com\'; document.write( \'\' ); document.write( addy72934 ); document.write( \'\' ); , orwww.taxadvisorexperts.org, orwww.taxlibrary.us.

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Anonymous
to k Plainview, New York, United States #605344

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
#578379

Winter 2010

IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A

By Lance Wallach

Taxpayers who previously adopted 419, 412i, captive

insurance or Section 79 plans are in big trouble.

In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as listed transactions." These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions. In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction. But you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do you have to file Form 8886, but it also has to be prepared correctly. I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filling. Most people file late and...

"Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years."

Many business owners adopted 412i, 419, captive insurance and Section 79 plans based upon representations provided by insurance professionals that the plans were legitimate plans and were not informed that they were engaging in a listed transaction. Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section 6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A penalties.

The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS’s inquiry, especially when the taxpayer had previously reached a monetary settlement with the IRS regarding its deductions. Logic and common sense dictate that a penalty should not apply if the taxpayer no longer benefits from the arrangement. Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed transaction if the taxpayer’s tax return reflects tax consequences or a tax strategy described in the published guidance identifying the transaction as a listed transaction or a transaction that is the same or substantially similar to a listed transaction.

Clearly, the primary benefit in the participation of these plans is the large tax deduction generated by such participation. Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years. While the regulations do not expand on what constitutes “reflecting the tax consequences of the strategy,” it could be argued that continued benefit from a tax deferral for a previous tax deduction is within the contemplation of a “tax consequence” of the plan strategy. Also, many taxpayers who no longer make contributions or claim tax deductions continue to pay administrative fees. Sometimes, money is taken from the plan to pay premiums to keep life insurance policies in force. In these ways, it could be argued that these taxpayers are still “contributing,” and thus still must file Form 8886.

It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction as described in the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20, which classifies 419(e) transactions, appears to be concerned with the employer’s contribution/deduction amount rather than the continued deferral of the income in previous years. Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated. To avoid the fine, the CPA has to properly file Form 8918.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, Wallach is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He is also a featured writer and has been interviewed on television and financial talk shows including NBC, National Pubic Radio’s All Things Considered and others. Lance authored Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.

Contact him at:

516.938.5007,

wallachinc@gmail.com, or

www.taxadvisorexperts.org, or

www.taxlibrary.us.

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Anonymous
#573998

March 8, 2010

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs." He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If history is any guide, 2010 will be a year in which many Americans use a few simple methods to reduce their tax liability, which could potentially cost the government billions of dollars.

This year is the last before the expiration of tax cuts originally put in place by the Bush administration. If Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates will increase from 28, 33, and 35 percent to 31, 36, and 39.6 percent.

Although it is not certain that tax rates will go up, many wealthy Americans are looking at 2010 as the end of the party. "Everybody thinks taxes are going up and tax breaks are being eliminated. Everybody's thinking this, and they're planning for it," says Lance Wallach, a New York author, lecturer, and financial consultant who advises high net-worth clients, including entertainers and athletes. His phone is ringing off the hook with questions from clients about how they can take advantage of this year's rates relative to 2011's.

One of the most popular...

Creative maneuvering. This would not be the first year taxpayers have pursued this strategy. In 1992, Bill Clinton was elected president with promises to raise taxes on wealthy Americans, which Congress did in 1993, boosting the top marginal rate from 31 to 39.6 percent. In late 1992, many taxpayers, expecting rates to be higher the next year because of Clinton's victory, moved more income onto 1992's tax return to avoid paying more with the higher rate. Robert Carroll, an economist at a Washington research organization called the Tax Foundation, estimates that about $20 billion was shifted and paid at the 31 percent rate rather than the 39.6 percent—meaning there was about $1.5 billion that the federal government did not collect in revenue.

Something similar could happen this year. "Anyone who has flexibility with income is going to try to shift their income," says Carroll. An example of flexibility would be a business owner who gives himself or herself a bonus in December 2010 rather than January 2011.

There's also an incentive to delay tax deductions. For example, state property and income taxes can be deducted from federal income tax returns. Wallach says he is recommending that clients hold off on paying those taxes until next year, so that the deductions can be cashed in at the higher rate.

Some may choose to delay charitable gifts for the same reason—charitable giving is tax deductible, so some taxpayers may decide to hold off on a gift they would make in 2010 and instead give a larger amount in 2011. "What we know from history, if the taxes go up, people will delay their giving," says Nancy Raybin, chair of the Giving Institute, an association of nonprofit consultants. But Raybin says such delays usually are not significantly damaging to charities because people will often just push a gift forward a few months—from December to January, for example. "If there's a 12-month delay, it could be a problem. But if a donor is just delaying one month, it's not a big problem," she says.

These tax-avoidance strategies will probably be a one-time deal for those who pursue them. A study by economist Austan Goolsbee, currently a member of the Council of Economic Advisers, found that the 1993 drop-off in reported income was temporary. Income bounced back in following years. If tax rates appear to be steady after 2011, accelerating one's income or delaying deductions is no longer advantageous. But taxpayers will continue to look for ways to reduce their liability—they just need the time and money to find the loopholes. Wallach says most of his clients will adjust to higher tax rates with his help. "For the very sophisticated people, there will always be loopholes," he says, such as deducting travel and entertainment expenses. "None of my clients pay more in taxes than a schoolteacher." For issues like these Wallach has various websites including www.taxlibrary.us .

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Anonymous
to k Plainview, New York, United States #607268

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
to m New York City, New York, United States #739185

Is the End at Hand for Tracy Sunderlage & Nikolai Battoo?

419 plan litigation, Sunderlage, Battoo

Suspected fraudsters Tracy Sunderlage and Nikolai Battoo are about out of time.

We have closely followed the many legal cases surrounding Nikolai Battoo and Tracy Sunderlage. Together they, and entities controlled or involved with them, have cost investors hundreds of millions of dollars. Our clients alone have lost many millions.

A sampling of the entities connected with the two men or engaged in similar activities include PIWM, BC Capital, Maven, PBT, Anchor Hedge Fund, SRG International, SIAM (Sovereign International Asset management), Randall Administration, Fidelity Insurance and Sunderlage Resource Group. Often people are fooled because many of these entities have names that sound similar to legitimate financial businesses.

The primary case against the men in the United States was brought by the Securities and Exchange Commission. The SEC filed a civil suit in September of last year. In addition to seeking an order to restrain the men from any further violations of securities law, the government also sought to force the two to dislodge any ill-gotten gains.

One year later and it appears that the court will soon be defaulting both men. No monies have been collected, however. In fact, two months ago, the court appointed a pro bono (“free”) lawyer to represent Sunderlage after finding he was indigent. Tens of millions,...

Battoo and BC Capital was defaulted on August 23rd. The Court denied the SEC’s request to default Sunderlage and gave him one last chance to answer until October 30th. The next court date is November 4th, 2013.

That neither man fought the charges speaks volumes to the little hope for a rapid recovery of funds. In our experience, those that don’t fight the charges against them are either truly broke or believe they have hidden the money so well that they are confident the government won’t be able to find it.

The foreign liquidation proceedings against Nikolai Battoo seem to be fairing only slightly better. There may be some money sitting in the Isle of Guernsey but there is no guarantee that the money will go to his American victims. That is because there are people all over the world clamoring for the return of their lost investments.

Hope for Tracy Sunderlage & Nikolai Battoo Investors

Is there hope? Of course.

We have been most successful going after the people who sold or marketed the investments. Although Tracy Sunderlage did much of the marketing himself, he also recruited stockbrokers, insurance agents and even a few accountants to sell his investment program. Ordinarily, financial professionals are hard to fool but Sunderlage and Battoo put on an elaborate sales pitch and would often lure stockbrokers and insurance agents into their scheme with offshore marketing trips.

Not only can the people who sold these investments be held responsible, sometimes the accountants and lawyers who “blessed” these investments can also be held responsible for their malpractice or negligence. Currently we are looking at the auditors who reviewed these schemes and gave them a clean bill of health.

Time is running out on many of these third party claims, however. In some states, it may already be too late. If you are the victim of a fraud committed by Sunderlage or Battoo, seek help now. These plans were marketed under a variety of names including welfare benefit plans, business protection plans, PBT multiple employer plans, Maven structures, offshore captive insurance companies and so-called 419 plans.

Although each type of plan was slightly different, they all shared a few common themes – the programs were marketed to suggest that an investor can take a large chunk of income and avoid paying tax by calling it an insurance premium. Later the money could be withdrawn, again tax free.

If you think that sounds to good to be true, it is. The IRS began warning about these plans in 1995. Unfortunately, shrewd promoters stayed one step ahead of the IRS by constantly changing the program. (Ultimately, many of the promoters simply stole the money often making the tax issues irrelevant.)

In some particularly tragic cases, not only did the investors lose their life savings but also faced expensive audits and tax bills from the IRS. (The IRS considers many of these schemes to be abusive tax shelters).

What’s next? We strongly recommend that you don’t just sit back and wait for the government or a court appointed liquidator in some small Caribbean island to collect your money. Although each case is very different, we do accept Sunderlage and Battoo cases on a contingent fee basis.

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Anonymous
#573993

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printsubmit an articlerecent articlesback

FBAR Information

--------------------------------------------------------------------------------

By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Call Lance Wallach at (516)...

--------------------------------------------------------------------------------

The willful failure to file the FBAR report or retain records of your foreign accounts can potentially lead to a ten-year prison sentence and fines of up to $500,000. This criminal penalty applies to all US citizens pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may also apply to persons living in the United States who are not citizens.

If you fail to answer the question truthfully on schedule B of your Form 1040 which asks if you “have an interest in or a signature or other authority over a financial account in a foreign country”, then your false statement might be deemed a criminal offense by the IRS per the sections mentioned above if other surrounding facts and circumstances apply.

Our office is headed by a former international tax IRS agent with 37 years experience as a CPA and Associate Professor of accounting. Call our office immediately so you can avoid the dire circumstances described above and deal with the other associated problems.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or entity. You should contact an appropriate professional.

ABOUT THE AUTHOR: Lance Wallach

Lance Wallach is a frequent speaker at national conventions and writes for more than 50 publications. He was the National Society of Accountants Speaker of the Year.

Copyright Lance Wallach, CLU, CHFC

More information about Lance Wallach, CLU, CHFC

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

HG.org Worldwide Legal Directories

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Anonymous
#566726

Advisers staring at a new ‘slew' of litigation from small-business clients

Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price

By Jessica Toonkel Marquez

October 14, 2009

Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisers didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.

The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.

So advisers who sold these plans...

“There is a slew of litigation already against advisers that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”

Mr. Wallach declined to cite any specific suits. But one adviser who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending.

“My legal and accounting bills last year were $864,000,” said the adviser, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”

Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.

In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”

But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.

“If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisers that sold these plans to them,” .

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Anonymous
#564446

GOOGLE LANCE WALLACH FOR HELP

Anonymous
#563223

f

Anonymous
to yf New York City, New York, United States #737664

benistar grist mill trust sea nine veba CJA and associates welfare benefit 419 plan IRS audits lawsuits

Anonymous
#555401

www.taxaudit419.com for help

Anonymous
to k Plainview, New York, United States #605350

TAX MATTERS

TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied...

Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,

516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits.

Journal of Accountancy January 2008

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Anonymous
#537806

THAN 22 YEARS

of successful

practice

Read More

Professional Benefits Trust | 419 Litigation

Participants Of Professional BenefitsTrust/PBT/Mavin/Acadia Likely To Lose 50% Of Their Assets Per Year Under FBAR Reporting Rules As A Result Of DOJ Enforcement Action Against Tracy Sunderlage, Mavin LLC

Professional Benefits Trust | 419 Litigation

Potential trouble (419 Litigation) is in store for any participants of the Professional benefits trust (“PBT”) who chose to continue in the “welfare plan” and allow the assets to be moved offshore and be deposited into the Mavin Assurance and Acadia annuities are in danger of losing 50% of their assets per year in penalty payments to the United States Treasury.

On July 13, 2011, the Department of Justice sued Tracy Sunderlage, Mavin LLC and others in federal court in the Northern District of Illinois claiming that the PBT/Mavin/Aciadia scheme constitutes an offshore income tax scam. The DOJ seeks to enjoin the activities of these parties–but it also seeks to gain information about taxpayers who are participating in the Mavin and Acadia transations. Once the DOJ acquires the participant list in the lawsuit the IRS will commence enforcement activities against the participants the lists reveal.

419 Litigation Pertaining to PBT/Mavin/Acadia Offshore Income Tax Scam

The vast majority of the people participating in the PBT/Mavin/Acadia transactions do...

Big Trouble Ahead, Including 419 Litigation, For Many 419 Welfare Benefit Plan Participants

Participants in the PBT/Mavin/Acadia transaction should take action now to contact tax and other appropriate professionals to help them avoid these potentially disastrous consequences. There is a voluntary disclosure program available to FBAR non-filers that drastically reduces penalties…but the deadline for filing is August 31, 2011. Further, legal assistance will be required in order to return participants assets to the United States and to the control of the assets rightful owners.

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