Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans
Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans (click the link to go to the page)
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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By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
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 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 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, 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.
"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, 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.
Servicers for 419, 419e, 412i, Section 79, captive insurance, listed transactions
 | The Offices of Lance Wallach Offer help with the following: Tax penalty abatement | |
| IRS audit appeals | |
| U.S. Tax Court cases | |
| Multinational taxation consulting | |
| Incorporating your business | |
| Recovering losses from insurance | |
| companies & brokerage firms | ||
| Tax shelter analysis | |
| Pension plan reviews & evaluations | |
| 419 & 412 type benefit plan analysis, | |
| remediation | ||
| Offshore tax shelter issues | |
| IRS listed transactions assistance | |
| Expert witness testimony for tax, | |
| insurance & retirement plan cases | ||
| SSI & Disability benefits advocates | |
| Pension & Benefit Plan Fraud | |
| Insurance Company Fraud |
Needed: Financial Writers to collaborate on New Book with Lance Wallach
We need book content on various subjects for my new books for the AICPA, Bisk,Wiley and others.
If you are interested in getting you name in from of a lot of people above are two great ways. www.financeExperts.org Has a backlog of business owners and consumers that need help in various fields like finance, insurance, investments, finding a high level new employee, real estate, startups, estate planning, law, retirement plans, accounting, etc., etc. It is not just for finance. Last month 451 business owners and professionals asked for the name of an insurance agent, 341 for an accountant, 79 needed help fining a new employee, 145 wanted an estate planner, 351 an investment expert, 31 someone to help with their new business startup, 87 people last month asked for the name of a real estate agent, 453 for an accountant, etc., etc.
Membership is limited to a total of 1000 experts, and no more than 22 experts per category. For example www.financeExperts.org Now has 19 accountant experts and needs 3 more. If you cannot qualify to join try the free online forum for leads. Members also contribute to other experts, book articles etc. We also draw from experts to speak at conventions that other experts are on. Members share the cost of the site which was $97 per member last year. We also have a few featured experts, the best experts.
If you want to contact us about trying to join, or writing for a book or contributing an article for publication www.lanwalla@aol.com You may want to Google me, if you do not know who I am. We currently need a total of 31 more experts.
Lance Wallach
Ph.: (516)938-5007
Fax: (516)938-6330
Website: www.taxaudit419.com
National Society of Accountants Speaker of The Year
Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He speaks at more than 70 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit www.vebaplan.com or call 516-938-5007.
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.
If you are interested in getting you name in from of a lot of people above are two great ways. www.financeExperts.org Has a backlog of business owners and consumers that need help in various fields like finance, insurance, investments, finding a high level new employee, real estate, startups, estate planning, law, retirement plans, accounting, etc., etc. It is not just for finance. Last month 451 business owners and professionals asked for the name of an insurance agent, 341 for an accountant, 79 needed help fining a new employee, 145 wanted an estate planner, 351 an investment expert, 31 someone to help with their new business startup, 87 people last month asked for the name of a real estate agent, 453 for an accountant, etc., etc.
Membership is limited to a total of 1000 experts, and no more than 22 experts per category. For example www.financeExperts.org Now has 19 accountant experts and needs 3 more. If you cannot qualify to join try the free online forum for leads. Members also contribute to other experts, book articles etc. We also draw from experts to speak at conventions that other experts are on. Members share the cost of the site which was $97 per member last year. We also have a few featured experts, the best experts.
If you want to contact us about trying to join, or writing for a book or contributing an article for publication www.lanwalla@aol.com You may want to Google me, if you do not know who I am. We currently need a total of 31 more experts.
Lance Wallach
Ph.: (516)938-5007
Fax: (516)938-6330
Website: www.taxaudit419.com
National Society of Accountants Speaker of The Year
Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He speaks at more than 70 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit www.vebaplan.com or call 516-938-5007.
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.
BECOME an AUTHOR the EASY WAY! Need Content Collaborators!
LANCE WALLACH has MORE BOOKS on the way: We are seeking Content Collaborators: We need book content on various subjects for my new books for the AICPA, Bisk,Wiley and others. Subjects include: Finance, Accounting, Marketing, PR, Sales, Insurance, Business analysis, etc.
Call The Offices of Lance Wallach and ask for Kym.
Ph.: (516) 938-5007
-----------------------------------------------------------
Lance Wallach's Newest book!
Protecting Clients from Fraud, Incompetence and Scams
LINK to Barnes & Noble - Click here
Synopsis
Protect your clients – and yourself – from all kinds of financial chicanery and stupidity with this vital new book!
It doesn't matter if a financial error was made because of malice or ignorance – the end result is that you lose money. Luckily, you don't have to sit idly and take it. If you have Protecting Clients from Fraud, Incompetence and Scams, you can identify and avoid the dysfunctional sectors of the financial industry, steer clear of the fallout from the Madoff Era, and guide your clients to real, healthy, sustainable returns. This powerful book!
Lance Wallach, CLU, ChFC, 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. He does extensive expert witness work and has never lost a case. Contact him at 516.938.5007 or visit http://www.taxaudit419.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.
Small Business related Directory
Call The Offices of Lance Wallach and ask for Kym.
Ph.: (516) 938-5007
-----------------------------------------------------------
Lance Wallach's Newest book!
Protecting Clients from Fraud, Incompetence and Scams
LINK to Barnes & Noble - Click here
Synopsis
Protect your clients – and yourself – from all kinds of financial chicanery and stupidity with this vital new book!
It doesn't matter if a financial error was made because of malice or ignorance – the end result is that you lose money. Luckily, you don't have to sit idly and take it. If you have Protecting Clients from Fraud, Incompetence and Scams, you can identify and avoid the dysfunctional sectors of the financial industry, steer clear of the fallout from the Madoff Era, and guide your clients to real, healthy, sustainable returns. This powerful book!
Lance Wallach, CLU, ChFC, 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. He does extensive expert witness work and has never lost a case. Contact him at 516.938.5007 or visit http://www.taxaudit419.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.
Small Business related Directory
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