How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS -

How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS -

Agents from Hartford and other insurance companies were shown ways to sell large life insurance policies. This “Welfare Benefit Trust 419 plan or 412i plan should be shown to their profitable small business owners as a cure for paying too much taxes.

A Welfare Benefit Trust 419 plan essentially works like this:

• The business provides a fringe benefit for their employees, such as health insurance and life insurance.

• The benefit is established in the name of a trust and funded with a cash value life insurance policy

• Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company,and

• The owners of the company can withdraw the cash value from the policy in later years tax-free.
Read more by clicking the link above!

Lance Wallach on 419, 412i, and more (+playlist)

Lance Wallach - IRS Secrets You Should Know (+playlist)

IRS Penalties, Audits, Benefit Plans 419e 412i

Lance Wallach CPE Lawline

IRS Secrets You Should Know by Lance Wallach (+playlist)

How to Beat the IRS

By Lance Wallach

Beware of someone whose fee is based on a percentage of how much you save in taxes. Or who promises to get you a significantly higher refund than anyone else can. People like these are likely to prepare outrageous returns that will land you deep in trouble with the IRS.

Just because the IRS says you owe money doesn’t mean that’s correct. The agency makes mistakes - plenty of them, even computing penalties and interest.

Having a smart, well-prepared tax expert on your side can be a tremendous advantage. Not only will they know the ins and outs of the tax code, but also they can take over the often-exhausting job of dealing with the IRS – and help you decide how far to push the fight.

If you feel you have a bulletproof case but are getting nowhere with an auditor, stay calm – and consider asking to speak to that person’s manager. If that doesn’t help either, consider taking your case to an IRS appeals office. An IRS publication says, “most differences” between taxpayers and the IRS that reach the appeals level are settled. For details see IRS publication 556.

You may also consider taking your case to the IRS Taxpayer Advocate Service, or TAS, an organization within the IRS created to help taxpayers resolve problems, as well as advocate for changes within the system.

You may be eligible for help if you have tried to resolve your tax problems through normal IRS channels and haven’t gotten anywhere, or if you believe an IRS procedure isn’t working as it should, such as an amended return that hasn’t been processed, as advocate spokesperson says.

If you are facing a financial crisis and have no hope of repaying everything you owe, consider asking the IRS to settle for some lesser amount.

Specifically, IRS employees “will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise,” the IRS said. “Normally, the standard practice is to judge earnings in prior years.”

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, Email or visit and

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.

FBAR OVDI Offshore Tax Issues -

In 2012 the IRS announced another offshore voluntary disclosure program (the 2012 OVDI). These programs offer reduced penalties in exchange for taxpayers’ voluntarily coming into compliance before the IRS is aware of their prior tax indiscretions.

The 2012 OVDI is patterned after the 2011 OVDI, but increases the maximum Report of Foreign Bank and Financial Accounts (FBAR)-related penalty from 25 percent to 27.5 percent of the highest account value at any time between 2003 and 2010. The IRS can terminate it at any time as to specific classes of taxpayers or as to all taxpayers. In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDI program.

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,
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

Why own Variable Annuities? Frequently you see the word “guarantee” associated with Variable Annuities (VA). What does that mean?

The typical VA acts as a tax deferred tax shelter, like an IRA. Unlike an IRA, anyone can open any sized (e.g.: $1,000 or $1 million) Variable Annuity, independent of his or her income, age or employment status. This is quite attractive for someone looking to shelter income from taxation, particularly for those that cannot achieve their goal with an IRA.

Traditional IRAs can only be established by those under the age of 70 ½ and those (or the spouse of those, if married filing jointly) who receive income or alimony. An IRA has contributions limits, which limit the tax sheltering benefits.

In almost all cases a variable annuity (VA) is a form of life insurance. The traditional insurance salesperson markets the variable annuity as a way to safely invest in the financial markets, without risking your principal. We all know there is no such thing as a free lunch inside or outside the world of finance. The insurance salesperson will often tell you, you cannot earn less than 6% or 7% on the investment.

Inherent in most VA policies are two components, an investment component and an insurance component. The investment component offers a choice of investments similar to mutual funds, called sub-accounts. It is the insurance component that is hard to understand.

The insurance component of a VA includes a death benefit. The death benefit “guarantees” the beneficiary will receive the greater of the: value of the VA at death, or the total of all contributions.
Here is an example of an investor, whose portfolio was 100% invested in a stock sub-account of a variable annuity. Assuming the investor invested $5,000 each year for 20 years, contributions would total $100,000. If the average net return per year were 7%, the Variable Annuity would be worth approximately $205,000 at the end of 20 years.

One evening this same Variable Annuity (VA) buyer learns the stock market has declined 50% in that day. This buyer realizes his VA is worth $102,500, has a stroke and dies. His beneficiary would receive the greater of $102,500 or $100,000. In this case the beneficiary would receive $102,500.
So, where was the death benefit? There was NO death benefit. The only time the beneficiary receives a death benefit is when the policy value falls below the total value of contributions made AND the investor dies.

Well, at least the investor did not have to pay any expenses for a death benefit they did not receive, right? Wrong. In most Variable Annuities the policies are mortality and expense charges, called M&E charges. The “E”, or expense charge, represents the administrative component of the M&E. The “M”, or mortality charge, represents the life insurance component of M&E.

The industry average annual annuity charge for non-group open variable annuity contracts was 1.37%. In addition to M&E charges, most VA policies have surrender costs. These are penalties assessed on the policy if the investor moves the policy before the surrender period ends. Some insurance companies offer annuities with 10-12 surrender periods and 12%-15% surrender charges – something has to pay for the “Insurance Agents” commission. Of course, this is in addition to all underlying costs of the sub-accounts (similar to expense ratios inside all mutual funds).

A few companies offer no-load, low cost, no surrender penalty VA policies. An investor can transfer from one annuity to another annuity without tax consequences, like an IRA transfer, but it must be handled with care.

Like an IRA transfer, the transfer of a VA policy, should be conducted on a custodian-to-custodian basis. The transfer qualifies as a tax-free transfer if conducted using Internal Revenue Code 1035. A “1035 Exchange”, as it is commonly referred to as, is the transfer of one insurance policy into another insurance policy. Handled incorrectly, and the investor could have a taxable distribution and hefty tax bill to boot.

Guarantee? Insurance companies have been very quick to highlight the “guarantee” in their VA policies. A word of caution on that “guarantee”: it is not a guarantee by the U.S. Federal Government. Unlike FDIC, the guarantee provided by an insurance company is a promise by an insurance company that it will pay. Some investors who buy their variable annuities from bank are like-wise fooled. The bank does not guarantee the annuity. If the insurance company goes out of business, you cannot rely on the bank or the FDIC to pay you. This applies to all annuities. My Mother recently called me from a bank. By the way, my Mother belongs to Phi Beta Kappa and is intelligent. She was telling me how the bank manager was (helping her) get out of her CDs, where she pays taxes on the interest. She was being switched to FIXED Annuities. I asked her to ask the bank manager what were the guaranteed in the Fixed Annuities, what were the surrender charges if she wanted to cancel, what taxes would she have to pay if when she cashed the annuities in. A few minutes later my mother got back on the phone that the bank manager not only could not answer the questions, but now the manager was too busy to help her. In case you are wondering, had my Mother make the mistake of buying an annuity from the bank, there would have been substantial sales charges, substantial surrender charges and substantial taxes due when my Mother finally cashed the annuity. What should my Mother do? That is like asking me to prescribe without knowing the symptoms. That is a topic for another article. You may want to look at to read some very informative articles on point.

Buyer Beware! By the way, your typical Insurance Agent gets paid by commission therefore you have to be very careful. If you do the exchange wrong tax consequences will result.

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 Lance Wallach at 516.938.5007 or visit or

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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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.