Thursday, June 1, 2017

Abusive Tax Shelters & 419 Plans Lawsuits: 412i-419 Plans: As an expert witness Lance Wallach...

Abusive Tax Shelters & 419 Plans Lawsuits: 412i-419 Plans: As an expert witness Lance Wallach...: 412i-419 Plans: As an expert witness Lance Wallach side has never ... : As an expert witness Lance Wallach side has never lost a case: Somet...

recently been auditing 412(i) 
defined-benefit pension plans.
They are seeking substantial taxes and 
penalties from what they characterize as 
“abusive plans,” but they do not regard all 412
(i) plans as necessarily abusive.  A properly 
structured and administered 412(i) plan can 
be an invaluable tax reduction tool for a 
business, but care must be taken.

In addition, the IRS is stepping up its 
examinations of companies’ retirement plans 
this year, aiming to catch those that are 
cheating their workers or the government, 
and to ensure that the plans meet federal 
regulations.  The offerings to be examined 
include traditional pensions, 401(k)s and 
profit-sharing plans.

A few years ago, when I spoke at the national 
convention of the American Society of 
Pension Professionals and Actuaries about 
VEBAs, the IRS spoke about their 412(i) 
concerns.  Since then, they have escalated 
their challenges to “abusive” 412(i) plans.  In 
fact, certain plans are on the IRS list of 
abusive tax transactions.

Taxpayers who participate in “listed 
transactions” are required to report them to 
the IRS or face substantial penalties 
($100,000 in the case of individuals, and 
$200,000 in the case of entities).  In addition, 
“material advisors” to these plans are required 
to maintain certain records and turn them 
over to the IRS on demand.

When I addressed the 2005 annual 
convention of the National Society of Public 
Accountants, the IRS spoke about Circular 
230.  My impression was that if an 
accountant signed a tax return that disclosed 
involvement in a listed and/or abusive tax 
transaction, there could be Circular 230 

Most accountants are not familiar with 412(i) 
plans.  They are a type of defined-benefit 
pension plan that allows a large contribution.

The funding vehicles are usually fixed 
annuities and fixed life insurance.  They are 
traditionally sold by life insurance 
professionals and financial planners.

Given the substantial taxes and penalties that 
may be assessed if the IRS concludes that a 
412(i) plan has not been properly structured 
or administered,
The IRS is aiming to catch 
companies that are cheating their 
workers or the government.
especially if it concludes that the plan is a 
listed transaction, it is important that the 
taxpayer know the rules.

The accountant should also be aware of them. 
The fact that a plan is being sold by an 
insurance company does not make it safer.  
Recently the IRS has taken action against 
plans sold by 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, financial and estate 
planning, and abusive tax shelters.  He writes 
about 412(i), 419, and c

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