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The dangers of being "listed"

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

Accounting Today: October 25
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
($200,000 for a business and $100,000 for an individual) 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 has to be prepared correctly. I only know of two people in the United States who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over fifty phones 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. 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.  It
follows that taxpayers who no longer enjoy the benefit of those large deductions are no longer "participating ' in the listed transaction.   But that is not the end of the story. 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.  This language may provide the taxpayer with a solid argument in the event of an audit.  

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, financial and estate planning, and abusive tax shelters.  He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic 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 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.taxaudit419.com or www.taxlibrary.us.

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.



LANCEWALLACHEXPERTWITNESS.COM

8 comments:

  1. "Niche" "Bisys" "Veba" "Doug Williams" "arch bonnema" "steve toth" "captive insurance" "michael sonnenberg" "ron snyder" "brian cave" "benistar" "norm bevan"
    "doug williams" " williams coulson" "dennis cunning" "phil rowe" "sadi trust" "beta plan" "millennium plan" "grist mill trust" "compass welfare benefit plan" "sea nine"
    "professional benefits trust" "integrity 419" "integrity benefit plan" "veba plan" "sterling 419" "judy carsrud"



    By Lance Wallach
    October 23, 2010

    Welfare benefit plans (419), 412i, captive insurance and Section 79 plans are under intense IRS
    scrutiny and no matter what plan you were in, you surely need help now. The IRS has been
    cracking down on 419, 412i, listed transactions and virtually all plans, making it difficult for
    anyone who has been involved with one of these plans. Listed below are some of the companies
    and names of salesmen,and others that you may recognize.

    Plan Names:
    Niche
    BiSYS
    Veba
    Benistar
    SADI trust
    Beta plan
    Millennium plan
    Grist Mill trust
    Compass welfare benefit plan
    Sea Nine veba
    Professional Benefits Trust
    Integrity 419
    Integrity Benefit Plan
    Veba Plan
    Sterling 419

    People, law firms, etc., affiliated with plans:
    Doug Williams
    Arch Bonnema
    Steve Toth
    Michael Sonnenberg
    Ron Snyder
    Brian Cave
    Norman Bevan
    Dennis Cunning
    Williams Coulson
    Phil Rowe
    Judy Carsrud
    Michael Lloyd
    Greeberg Tarig


    If you need help getting out of a plan, redoing a plan, or reviewing a plan, we can help you.

    We have written books about the subject, given hundreds of lectures and have worked on these
    problems for many years.

    Our team includes ex-IRS agents, tax attorneys, CPAs, Erisa attorneys and others substantially
    knowledgeable about these plans.

    We have helped many others with these problems and look forward to helping you.
    - See more at: http://taxaudit419.com/article-25-What-plan-were-u-in-2.html#sthash.ocUeOUWx.dpuf


    www.vebaplan.com google lance wallach for help with IRS lawssuits get your money back etc benestar griwst mill trust sea nine veba CJA and

    ReplyDelete
  2. Question. Do you represent taxpayers who have participated in different welfare benefit plans?

    Answer. Yes. We have knowledge of many different welfare benefit plans and experience in representing taxpayers who participate in those plans before the IRS. A sampling of the plans that we know well include:

    Millennium Plan
    Insured Security Plan
    Corporate Benefit Services Plan
    Sea Nine Associates VEBA
    Niche National Benefit Plans
    Professional Benefit Trust (PBT)
    Koresko STEP Plan
    Bisys Plan
    Xelan Plan
    Sterling Plan


    Question. What is the IRS position on these plans?

    Answer. The IRS position appears to be that all multiple employer welfare benefit plans funded with permanent life insurance are abusive tax scams. Their history is to open promoter audits on every such plan and eventually to obtain the client lists from the promoters and then audit their clients. The IRS position on single employer welfare benefit plans that are spin-offs of the multiple employer plans appears to be the same. Similarly, the IRS position on single employer welfare benefit plans invested in permanent life insurance where the employer deducts more than the term cost of insurance is that those plans are also abusive tax scams.



    Question. Has the IRS approved any multiple or single employer welfare benefit plan invested in permanent life insurance?

    Answer. Though an IRS private letter ruling is not immediately public, it is my understanding that the IRS has never “approved” of any multiple or single employer welfare benefit plan where permanent life insurance was used as a funding vehicle and the participating employer took a deduction for anything other than the current term insurance cost.

    ReplyDelete
  3. Material Advisors & 419 Plans Litigation
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.

    Saturday, January 24, 2015
    IRS Penalties, Audits, Benefit Plans 419e 412i


    Posted by Lance Wallach at 11:48 AM
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    Labels: 412, 412(e), 412i, 412i Benefit Plan, IRS, Lance Wallach, Lance Wallach Expert Witness
    1 comment:

    Lance WallachFebruary 3, 2015 at 6:22 AM
    Home
    About
    Articles- Services
    Contact
    419-litigation
    About Us
    more than 30 years dealing with the irs
    419 Litigation

    Accountants, Business owners, and others face large IRS fines.
    Lance Wallach Jun 17
    IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A
    Lance Wallach

    Relevant Reading
    Lance Wallach, Managing Director, is the nation's leading expert on employee benefit plans, tax problem resolution and IRS audit defense.

    Lance Wallach was a leading registered representative, insurance and annuity adviser for Mutual Benefit Life and later for New England Life. He advised thousands of high income clients on annuities, life insurance, and health insurance.

    Lance also counseled famous Wall Street luminaries such as Hugh Downs and Louis Rukeyser (host of long-running television programs Wall Street Week with Louis Rukeyser and Louis Rukeyser’s Wall Street).

    Government officials have also sought Lance’s advice, including; Corman G. Franklin of the Office of Assistant Secretary for Policy US Department of Labor and Jon S. Havicon, an Internal Revenue Service Agent.
    Assistance With:
    The Millennium Plan
    SADI Trust
    Beta Plan
    Hartford
    PAC Life
    Niche
    Benistar
    The Grist Mill Trust
    Compass Welfare Benefit Plan
    Sea Nine VEBA
    CJA and Associates
    Bisys
    Professional Benefits Trust (PBT)
    Advantage - Sterling -
    Cresp Heritage Plan
    Indianapolis Life Piedmont
    And litigation involving other similar 412i Retirement plans​ and 419 Welfare Benefit plans

    ReplyDelete
  4. Material Advisors & 419 Plans Litigation
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.

    Saturday, January 24, 2015
    IRS Penalties, Audits, Benefit Plans 419e 412i


    Posted by Lance Wallach at 11:48 AM
    Email This
    BlogThis!
    Share to Twitter
    Share to Facebook
    Share to Pinterest

    Labels: 412, 412(e), 412i, 412i Benefit Plan, IRS, Lance Wallach, Lance Wallach Expert Witness
    1 comment:

    Lance WallachFebruary 3, 2015 at 6:22 AM
    Home
    About
    Articles- Services
    Contact
    419-litigation
    About Us
    more than 30 years dealing with the irs
    419 Litigation

    Accountants, Business owners, and others face large IRS fines.
    Lance Wallach Jun 17
    IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A
    Lance Wallach

    Relevant Reading
    Lance Wallach, Managing Director, is the nation's leading expert on employee benefit plans, tax problem resolution and IRS audit defense.

    Lance Wallach was a leading registered representative, insurance and annuity adviser for Mutual Benefit Life and later for New England Life. He advised thousands of high income clients on annuities, life insurance, and health insurance.

    Lance also counseled famous Wall Street luminaries such as Hugh Downs and Louis Rukeyser (host of long-running television programs Wall Street Week with Louis Rukeyser and Louis Rukeyser’s Wall Street).

    Government officials have also sought Lance’s advice, including; Corman G. Franklin of the Office of Assistant Secretary for Policy US Department of Labor and Jon S. Havicon, an Internal Revenue Service Agent.
    Assistance With:
    The Millennium Plan
    SADI Trust
    Beta Plan
    Hartford
    PAC Life
    Niche
    Benistar
    The Grist Mill Trust
    Compass Welfare Benefit Plan
    Sea Nine VEBA
    CJA and Associates
    Bisys
    Professional Benefits Trust (PBT)
    Advantage - Sterling -
    Cresp Heritage Plan
    Indianapolis Life Piedmont
    And litigation involving other similar 412i Retirement plans​ and 419 Welfare Benefit plans

    ReplyDelete
  5. John Hancock Life Insurance Co. and its law firm, Edwards Wildman Palmer, must face a class action accusing them of violating racketeering laws by marketing a tax shelter, a federal appeals court ruled on Wednesday.

    The 6th U.S. Circuit Court of Appeals in Cincinnati in reversing a lower court’s ruling, found that the insurer’s customers had sufficient grounds to pursue a claim under the Racketeer Influenced and Corrupt Organization Act (RICO).

    A word from our sponsor:

    ReplyDelete