Form 8886 and 419 Plans Litigation,
412i and 419e plans litigation, IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.
Life InsuranceIRS Says Most 419 PlansAre Abusive Tax Shelters IRS Says Most 419 PlansAre Abusive Tax Sheltersby Lance Wallach, CLU, ChFC, CIMCOBe skeptical of the plan promoter who says that all the other 419 plans are abusive, but that their plan is legal. It appears that almost every so called “419plan” is abusive.n October 17, 2007, the IRS, in Notice 2007-83, identified as listed transactions certain trustarrangements involving cash value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations wherein the tax deduction has been disallowed, in whole or in part, for premiums paid on such cash value life insurance policies. These arrangements claim to be welfare benefit plans.Taxpayers participating in listed transactions must disclose such participation to the Internal Revenue Service. Failure to disclose can result in severe penalties, up to $100,000 for Penalties can also be assessed against the insurance agent who sold the plan or the accountant who recommended it. In Notice 2007-84, the IRS threatened to impose penalties under IRC Sections 6700 and abettors (insurance agents) even if the plan is not a listed transactions.Revenue Ruling 2007-65 describes situations in which cash value life insurance is bought for owners or other employees. These are sold as 419(e), 419A(f)(6), and 419 plans. The 419A(f)(6) plan was previously categorized as a listed transaction. Other arrangements, described by the ruling, may also be listed penalties and alternative tax treatment on companies participating in such arrangements.The advisor who is approached by a clientabout one of these arrangements mustexercise utmost caution and not only onbehalf of the client. Your client must doimpeccable research on the promoter, whois likely to have once been in the 419A(f)(6) arena. If that is true, the IRS has hisname and that, in turn, makes an audit farriskier and more likely. Be skeptical of theplan promoter who says that all the other419 plans are abusive, but that their plan islegal. It appears that almost every so called“419 plan” is abusive. ❑––––––––––Lance Wallach, CLU, ChFC, CIMC, speaksand writes extensively about VEBAs, life insurance, and retirement plans. For more information, call 516-938-5007/935-7346.