Thursday, June 1, 2017

419 Plan

419 Plan


  1. Brochures promoting investment plans sometime include an opinion letter of a lawyer concerning the tax consequences of implementing the plan. Clearly, there is no attorney-client relationship between the lawyer offering the opinion and the customer. Moreover, the customer who purchases the plan will have difficulty in claiming reliance upon the opinion, in part because such opinions will include a disclaimer. But if the lawyer knows that the opinion is wrong and that it will be relied upon by the customer, a recent case illustrates that there could be liability to the customer under the Racketeer Influence and Corrupt Organizations Act, otherwise known as RICO.

    In Ouwinga v. Benistar 419 Plan Services, Inc., --- F.3d --- (6th Cir. 2012), according to the allegations in the amended complaint, plaintiffs were approached by financial advisors who promoted the purported tax benefits of a financial vehicle called the Benistar 419 Plan and Trust. The Plan involved the creation of welfare benefit trusts and the purchase of a financial product from two related insurance companies.

    Plaintiffs got their own lawyer and accountant involved in the discussion concerning the tax consequences of the Plan in a meeting with the financial advisors, wherein a tax attorney for the insurance companies participated by telephone, “providing legal assurances to the [plaintiffs] and affirming the representations about the Plan’s tax benefits.”

    The financial advisors allegedly presented, along with other documents, two books in the form of large loose-leaf binders that were produced by the company that would manage the plan, which “contained information about the Plan in general [and] touted its purported advantages, tax and otherwise…” According to the financial advisors and the binders, “Plan contributions were tax-deductible and that the [plaintiffs] could take money out of the Plan at any time tax-free.” The binders allegedly “highlight only positive authority and ignored certain IRS Notices and Rulings that ‘would have given the Plaintiffs an (accurate) indication that the Plan Payments were not deductible.” But the binders also included a disclaimer that the insurance companies, “made no representations about the tax benefits of the…plan.”
    According to plaintiffs, the representations in the binders concerning the tax consequences were supported by the financial advisors and that the insurance company had “adopted and advanced the representations made in these books.” Moreover, the binders also allegedly contained a legal opinion by a lawyer concerning the purported tax consequences of the Plan, but which included a disclaimer that it can only be relied upon by the company administering the plan.

    Plaintiffs allegedly agreed to participate in the Plan based upon the representations made by the financial advisors and upon the legal opinion by the lawyer. Thereafter, plaintiffs made “substantial contributions” to the Plan, which were used to pay premiums to the insurance companies “to purchase large insurance policies on the lives of the [plaintiffs].”

    Thereafter, plaintiffs were allegedly informed by the financial advisors that “the IRS had changed the rules; that the [plaintiffs] would need to


  2. Login to see members only content
    Skip main navigation (Press Enter).
    Skip Navigation Links
    Daily Schedule
    Case Resolution
    Professional Credits

    Lance Wallach, CLU, ChFC
    Courses: 3057

    National Society of Accountants Speaker of the Year


    Baruch College (CUNY), Baruch College Graduate School
    The American College – Chartered Financial Consultant (ChFC)
    The American College – Chartered Life Underwriter (CLU)
    The Institute for Investment Management Consultants – Certified Investment Management Consultant (CIMC)
    Guest Lecturer For

    Baruch College (Taxes on Tuesdays); Long Island University, C.W. Post Graduate School of Accountancy.
    Speaker at more than 20 conventions yearly, including the annual national conventions of the American Association of Attorney - Certified Public Accountants, National Society of Accountants, National Network of Estate Planning Attorneys, National Association of Tax Practitioners, National Association of Enrolled Agents, National Association of Health Underwriters, American Society of Pension Actuaries, Employee Benefits Expo, Health Insurance Underwriters, NAPFA, NAIFA, FPA, NABA, ALPFA, various state CPA societies, Tax Institutes, as well as medical and insurance conventions, before CLU Societies, CPA/Law Forums throughout the United States, and Estate Planning seminars.
    Lance Wallach, a member of the AICPA faculty of teaching professionals and an AICPA course developer, is a frequent and popular speaker on retirement plans, financial and estate planning, reducing health insurance costs, and tax-oriented strategies at accounting and financial planning conventions. He has authored numerous books including The Team Approach to Tax, Financial and Estate Planning, Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots, and Sid Kess’ Alternatives to Commonly Misused Tax Strategies: Ensuring Your Client’s Future, all published by the AICPA, and Wealth Preservation Planning by the National Society of Accountants. His newest books CPAs’ Guide to Life Insurance and CPAs’ Guide to Federal and Estate Gift Taxation will be published this spring by Bisk CPEasy.

    Mr. Wallach has written for numerous publications including the AIPCA Journal of Accountancy, AICPA Planner, Accounting Today, CPA Journal, Enrolled Agents Journal, Financial Planning, Registered Representative, Tax Practitioners Journal, CPA/Law Forum, Employee Benefit News, Health Underwriter, Advisor and the American Medical Association News. Mr. Wallach is listed in Who’s Who in Finance and Industry and has been featured on television and radio financial talk shows, including National Public Radio’s "All Things Considered" and NBC television, etc.