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Abusive Insurance and Retirement Plans

Abusive Insurance and Retirement Plans



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IRS attacks 412i plans


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#1 VEBAPLAN

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    Posted 06 December 2010 - 09:38 AM
    [Deleted; Lance, I am not comfortable with a message on the message boards that includes a reprint of an email from an IRS employee that was not intended by the author to be public. -- David Baker, message boards administrator] 
      Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 50 national conventions annually and writes for more than 30 publications. For more information and additional articles on these subjects, visit www.vebaplan.com or call 516-938-5007.

        #2 VEBAPLAN

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          Posted 06 December 2010 - 09:39 AM
          The dangers of being "listed"
          A warning for 419, 412i, Sec.79 and captive insurance

          Accounting Today: October 25, 2010
          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
          ($200,000 for a business and $100,000 for an individual) 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 has to be prepared correctly. I only know of two
          people in the United States who have filed these forms properly for clients. They tell me that
          was after hundreds of hours of research and over fifty phones calls to various IRS
          personnel.

          The filing instructions for Form 8886 presume a timely filing. 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 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©(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. It
          follows that taxpayers who no longer enjoy the benefit of those large deductions are no
          longer "participating ' in the listed transaction. But that is not the end of the story.
          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. This language may
          provide the taxpayer with a solid argument in the event of an audit.

          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, wallachinc@gmail.com or visit www.taxaudit419.com or www.taxlibrary.
          us.

          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. 
            Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 50 national conventions annually and writes for more than 30 publications. For more information and additional articles on these subjects, visit www.vebaplan.com or call 516-938-5007.

              #3 VEBAPLAN

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                Posted 06 December 2010 - 02:15 PM
                VEBAPLAN, on Dec 6 2010, 09:38 AM, said:
                [Deleted; Lance, I am not comfortable with a message on the message boards that includes a reprint of an email from an IRS employee that was not intended by the author to be public. -- David Baker, message boards administrator]



                sorry, it was a very good article. they are the IRS and would not think twice about doing something to other people clients. we are using it in a tax court case. 
                  Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 50 national conventions annually and writes for more than 30 publications. For more information and additional articles on these subjects, visit www.vebaplan.com or call 516-938-5007.

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