Thursday, June 1, 2017

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  1. Section 79 Plansh, 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 insu


    Lance WallachApril 24, 2014 at 5:48 AM
    Keep a watchful eye
    Tax avoidance can lurk in employee benefit plans

    By Lance Wallach, CLU, ChFC

    As the Internal Revenue Service (IRS) continues to crack down on abusive retirement and employee benefit plans, many accountants will almost certainly, though inadvertently, land their clients and themselves in trouble.

    Two particular types of arrangements top the IRS list of abusive plans: the so-called 419 insurance welfare benefit plan and the 412(i) defined benefit retirement plan. These popular plans, while ostensibly for the benefit of employees, are popular with employers mainly because they can offer large tax deductions. The IRS believes those deductions are often disproportionate to the economic realities of these transactions. Both plans are usually sold by insurance agents who are motivated principally by the large commissions that flow from the sale of the insurance policies within these plans.

    Some of these plans have been designated as listed transactions by the IRS. Of particular interest is a spurt of IRS regulation in late 2007 that severely affected welfare benefit plans. Any participant in a listed transaction must file Form 8886 with the IRS to disclose participation in such a transaction. Failure to file can result in penalties of up to $100,000 for individuals and $200,000 for corporations. "Material advisors" to participants in such transactions, whom many CPAs are, must file Form 8918 to disclose their role. Failure to file leads to the same penalties that apply to taxpayer participants.

    Other plans attempt to take advantage of exceptions to qualified asset account limits, such as sham union plans that try to exploit the exception for separate welfare benefit funds under collective-bargaining agreements provided by IRC § 419A(f)(5). Others try to