Showing posts with label Lance Wallach Expert Witness. Show all posts
Showing posts with label Lance Wallach Expert Witness. Show all posts
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.
How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org
How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org
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.
• 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!
FBAR OVDI Offshore Tax Issues - HG.org
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, | |
| 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 |
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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.
READ THE REST HERE
Will Your Municipal Bond or Your Life Insurance Company Still Have Value Next Year?
Investor protection with municipal bonds is so spotty that there is potential for much mischief.
Disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Municipal issuers often don't file the most basic reports outlining their operating results or material changes in their financial conditions.
Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 60,000 issuers is common.
To keep reading, click here
Disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Municipal issuers often don't file the most basic reports outlining their operating results or material changes in their financial conditions.
Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 60,000 issuers is common.
To keep reading, click here
Should you File, and then Opt Out?
There's been discussion of "opting out" of the program to take your chances in audit, but it's a topic fraught with danger. Now, however, there is guidance about opting out of the program that makes much of it transparent. Because of this late date it is recommended that you properly file FBARs and the 90-day request for amnesty extension. This is the first important step. If the forms are not done properly, you will have extensive problems and will not have to think about opting out. If your forms are properly done and filed, then your situation should be discussed with someone who is experienced in these matters.
Read the whole thing here
Read the whole thing here
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS
You may want to think about participation in the IRS' offshore tax amnestyprogram (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS? Some clients think they are too small to be prosecuted. They are wrong.
To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That's it.
But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.
Using VEBAs For Employer-Owners | LifeHealthPro
Imagine a program that allows large, flexible, tax-deductible contributions to accumulate and compound on a tax-deferred basis. Distributions are received at any age without penalties, regardless of the amount. Assets are protected from creditors' claims. There are income and estate tax-free survivor benefits. The program is fully insured and, by a favorable Letter of Determination, the Internal Revenue Service has granted a tax exemption to the Section 501(c)(9) trust.
The program also can acquire tax-deductible life insurance, provide funds to pay estate taxes and provide tax-deductible educational benefits for children.
These are some of the benefits of a Voluntary Employees' Beneficiary Association (VEBA). VEBAs are tax-exempt trusts (or nonprofit corporations) that are described in Section 501(c)(9) of the Internal Revenue Code of 1986. They require a letter of determination from the IRS granting tax exempt trust status. If the statutory requirements are met and the IRS issues a favorable Letter Of Determination, then, in general, the qualified cost of contributions by an employer to the VEBA that are ordinary and necessary expenses, are deductible for federal income tax purposes.
VEBA Basic Concepts Revisited | LifeHealthPro
Since my last article on Voluntary Employees' Beneficiary Associations, I've received hundreds of phone calls with basic questions which I will attempt to answer in this article.
First and perhaps most important, a VEBA only becomes a tax-exempt organization under Internal Revenue Code Section 501(c)(9) when it has received a Letter of Determination from the Internal Revenue Service granting it tax exempt status.
If a business or professional wants to participate, it joins an existing multiple employer VEBA which has received this determination letter from the IRS. (It is important to note that while several VEBAs have received IRS determination letters, not all programs purporting to be VEBAs have received them.)
VEBAs allow large amounts of tax-deductible contributions for the funding of life insurance, accident insurance, sickness and other benefits for the members of the VEBA, their employees, dependents and beneficiaries. Contribution amounts can be made flexible and benefits are highly favorable to the business owner.
Under the proper conditions, a small business can sometimes put in hundreds of thousands of tax-deductible dollars per year to fund its VEBA.
Establishing a Buy-Sell Agreement | LifeHealthPro
Working with an attorney, you can help a company establish a buy-sell agreement that sets down in writing what happens to the company's ownership structure in the event a member of the ownership group or a major shareholder dies or becomes disabled.
Without such an agreement in place, a company can be thrown into disarray if one of its owners or key shareholders dies, since the deceased's stake will likely revert to their estate. In that case, the surviving owners' attempts to redeem stock from the estate of the deceased can be a complicated, prolonged, and sometimes contentious process, particularly when it comes to valuing that stock.
How to Avoid IRS Fines for You and Your Clients | LifeHealthPro
Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.
A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."
Section 79 Scams and Captive Insurance History - HG.org
When trying to understand how a product becomes a target of government scrutiny it helps to know its history. In the case of plans that fall under Internal Revenue Code Section 79, that history is complex.
Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in accomplishing this.
After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC 6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine. In essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and done every year that you are in the plan in any way at all, even if you are no longer making contributions.
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in accomplishing this.
After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC 6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine. In essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and done every year that you are in the plan in any way at all, even if you are no longer making contributions.
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