CAUTION: IRS is attacking 419, 412i, 412(e)(3), and Section 79 plans, and many other benefit plans described as 'captive insurance.'

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Abusive Insurance, Welfare Benefit, and Retirement Plans


The A2Z Directory                                               March 2011                   Lance Wallach                                


 

The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to be abusive.  Most insurance agents sell these plans.  The IRS is looking to raise money and is not looking to correct plans or help taxpayers. The IRS calls accountants, attorneys, and insurance agents “material advisors” and also fines them the same amount, again unless the client’s participation in the transaction is reported.  An accountant is a material advisor if he signs the return or gives advice and gets paid.  More details can be found on www.irs.gov and vebaplan.org.

Bruce Hink, who has given me written permission to use his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners.  What follows is a story about how the IRS fines him each year for being in what they called a listed transaction.  Listed transactions can be found at www.irs.gov.  Also involved are what the IRS calls abusive plans or what it refers to as substantially similar.  Substantially similar to is very difficult to understand, but the IRS seems to be saying, “If it looks like some other listed transaction, the fines apply.”  Also, I believe that the accountant who signed the tax return and the insurance agent who sold the retirement plan will each be fined as material advisors.  We have received many calls for help from accountants, attorneys, business owners, and insurance agents in similar situations.  Don’t think this will happen to you?  It is happening to a lot of accountants and business owners, because most of theses so-called listed, abusive, or insurance agents are selling substantially similar plans. Recently I came across the case of Hink, a small business owner who is facing thousands in IRS penalties for 2004 and 2005 because of his participation in a section 412(i) plan.  (The penalties were assessed under section 6707A.) 

In 2002 an insurance agent representing a 100-year-old, well-established insurance company suggested the owner start a pension plan.  The owner was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and give an opinion on.  The CPA gave the plan the green light and the plan was started. Contributions were made in 2003.  The plan administrator came out with amendments to the plan, based on new IRS guidelines, in October 2004. The business owner’s insurance agent disappeared in May 2005, before implementing the new guidelines from the administrator with the insurance company.  The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that had not been applied, and no agent.

 

It took six months of making calls to the insurance company to get a new insurance agent assigned.  By then, the IRS had started an examination of the pension plan.  Asking advice from the CPA and a local attorney (who had no previous experience in these cases) made matters worse, with a “big name” law firm being recommended and over ,000 in additional legal fees being billed in three months. To make a long story short, the audit stretched on for over 2 ½ years to examine a 2-year-old pension with four participants and the 8,000 in contributions. During the audit, no funds went to the insurance company, which was awaiting formal IRS approval on restructuring the plan as a traditional defined benefit plan, which the administrator had suggested and the IRS had indicated would be acceptable.In March 2008 the business owner received a private e-mail apology from the IRS agent who headed the examination, saying that her hands were tied and that she used to believe she was correcting problems and helping taxpayers and not hurting people.

 Could you or one of your clients be next?

 

To this point, I have focused, generally, on the horrors of running afoul of the IRS by participating in a listed transaction, which includes various types of transactions and the various fines that can be imposed on business owners and their advisors who participate in, sell, or advice on these transactions.  I happened to use, as an example, someone in a section 412(i) plan, which was deemed to be a listed transaction, pointing out the truly doleful consequences the person has suffered.  Others who fall into this trap, even unwittingly, can suffer the same fate.

Now let’s go into more detail about section 412(i) plans.  This is important because these defined benefit plans are popular and because few people think of retirement plans as tax shelters or listed transactions.  People therefore may get into serious trouble in this area unwittingly, out of ignorance of the law, and, for the same reason, many fail to take necessary and appropriate precautions. The IRS has warned against the section 412(i) defined benefit pension plans, named for the former code section governing them.  It warned against 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 the participation under pain of penalties. Targets also include some retirement plans.

One reason for the harsh treatment of some 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 the transactions.  In general, IRS auditors divide audited plan into those they consider noncompliant and other they consider abusive.  While the alternatives available to the sponsor of 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 than participants.  Although in some situation 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. Another plan the IRS is auditing is the section 419 plan.  A few listed transactions concern relatively common employee benefit plans the IRS has deemed tax avoidance schemes or otherwise abusive.  Perhaps some of the most likely to crop up, especially in small-business returns, are the arrangements purporting to allow the deductibility of premiums paid for life insurance under a welfare benefit plan or section 419 plan.  These plans have been sold by most insurance agents and insurance companies.

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 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 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.taxadvisorexperts.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.

 

 


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Businesses that participated in a "412i retirement plan" or a"419 welfare benefit plan" are now being "audited by the IRS" because many of these plans were not in compliance with the law and are considered "abusive tax shelters".  Very often, business owners who participated in one of these "welfare benefit planss" or "retirement plans"  were not even aware that they might be an "abusive tax shelter" and that they are in serious jeopardy of huge "IRS penalties" for each year that they have been in the plan.  Insurance companies", CPAs, sellers of these "419 welfare benefit plans" or "412i retirement plans", as well as anyone that gave "tax advice" or recommended participation in one or more of these plans, is in danger of being sued, "fined by the IRS", or both.
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There is help available if you think you may be involved with one of these "419 welfare benefit plans", 412i "retirement plans", or any "abusive tax shelter"including "captive insurance" plans and "Section 79 plans" "
"Grist Mill Trust" Benistar "SADI Trust" "Beta 419" "Millennium Plan" Bisys "Creative Services Group" "Sterling Benefit Plan" "Compass 419" Niche  "Sea Nine Veba" 419 412i 419e "expert witness insurance" "welfare benefit plans" "419 plan help" "expert witness irs"
Let "Lance Wallach" and his team of "419 welfare benefit plan" and 412i "retirement plan" experts evaluate your plan.  Find out today what you can do.  Your business is depending on you!

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  • Speaker of the Year and member of the AICPA faculty of teaching professionals
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  • 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
  • Author of Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons
  • Author of Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation
  • Author of AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.



Participate in a 419 or 412i Plan or Other Abusive Tax Shelter You could be fined a large amount of Money


Retirement today                                                                        Sept 2011

 Lance Wallach

 

Did you get a letter from the IRS threatening to impose this fine? If you haven’t already, you still may. Consider yourself lucky if you have not because this means that you have more time to straighten this situation out. Do not wait for this letter to come from the IRS before you call an expert to help you. Even if you have been audited already, you could still get the letter and/or fine. One has nothing to do with the other, and once the fine has been imposed, it is not able to be appealed.

Many businesses that participated in a 412i retirement plan or the IRS is auditing a 419-welfare benefit plan. Many of these plans were not in compliance with the law and are considered abusive tax shelters. Many business owners are not even aware that the welfare benefit plan or retirement plan that they are participating in may be an abusive tax shelter and that they are in serious jeopardy of huge IRS penalties for each year that they have been in this type of plan.

Insurance companies, CPAs, sellers of these 419 welfare benefit plans or 412i retirement plans, as well as anyone that gave tax advice or recommended participation in one or more of these plans, also known as a material advisor, is in danger of being sued, fined by the IRS, or both.

There is help available if you think you may be involved with one of these 419 welfare benefit plans, 412i retirement plans, or any abusive tax shelter. IRS penalty abatement is an option if you act now. Feel free to contact me for more information. www.lancewallach.com

 

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 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 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.

 

 

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