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Big Problems For Co's With 419 Welfare Benefit Plans Funded By Life Insurance

Big Problems For Co's With 419 Welfare Benefit Plans Funded By Life Insurance

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  1. Journal of Accountancy Large Logo
    Home > September 2008 > Abusive Insurance and Retirement Plans
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    TAX / EMPLOYEE BENEFITS
    Abusive Insurance and Retirement Plans

    Single–employer section 419 welfare benefit plans are the latest incarnation in insurance deductions the IRS deems abusive
    BY LANCE WALLACH
    SEPTEMBER 2008
    EXECUTIVE SUMMARY

    Some of the listed transactions CPA tax practitioners are most likely to encounter are employee benefit insurance plans that the IRS has deemed abusive. Many of these plans have been sold by promoters in conjunction with life insurance companies.

    As long ago as 1984, with the addition of IRC §§ 419 and 419A, Congress and the IRS took aim at unduly accelerated deductions and other perceived abuses. More recently, with guidance and a ruling issued in fall 2007, the Service declared as abusive certain trust arrangements involving cash-value life insurance and providing post-retirement medical and life insurance benefits.

    The new "more likely than not" penalty standard for tax preparers under IRC § 6694 raises the stakes for CPAs whose clients may have maintained or participated in such a plan. Failure to disclose a listed transaction carries particularly severe potential penalties.

    Lance Wallach, CLU, ChFC, CIMC, is the author of the AICPA’s The Team Approach to Tax, Financial and Estate Planning. He can be reached at lawallach@aol.com or on the Web at, www.vebaplan.com or 516-938-5007. The information in this article is not intended as accounting, legal, financial or any other type of advice for any specific individual or other entity. You should consult an appropriate professional for such advice.

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