  
200K Report
Lance Wallach 419, 412i, Section 79, Captive Insurance
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If you are suffering from "tax problems" regarding "welfare benefit plan audits" and need 412i and "419 plan help", assistance with captive insurance, Section 79 plans, listed or reportable transactions, or IRC 6707A, you need Lance Wallach's "expert witness testimony" on your side.
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Warning! Taxpayers Who Have Adopted 419, 412i, Sec. 79 and Captive Insurance Plans Beware.
Warning! Taxpayers Who Have Adopted 419, 412i, Sec. 79 and Captive Insurance Plans Beware.
The Internal Revenue Service has declared an all out war on what they deem as fraudulent tax shelters. Unfortunately in their zeal to close the tax gap, many legitimate taxpayers find themselves in the crosshairs of the IRS. Regulators view many 419, 412i, Section 79 and captive insurance plans as abusive tax shelters. That has given rise to the dreaded "listed transaction" designation.
These plans are often sold by insurance agents, CPA's and financial planners. They have legitimate business uses and can shelter some income from tax. Unfortunately, some promoters have abused these plans subjecting their clients to audits, additional tax, penalties and interest.
Because these plans are now listed transactions, taxpayers must normally report these transactions to the IRS. Of course, there is a special IRS form, Form 8866. There are horrendous additional fines.
We have found that many tax preparers are unaware of the reporting requirements or improperly complete the forms. Even if the plan is legitimate, failing to alert the IRS of your plan or late filing can subject you to heavy penalties.
So many plans failed IRS scrutiny that thousands of taxpayers found themselves on the wrong end of an IRS penalty assessment. Things got so bad that Congress imposed a moratorium on certain penalties for several months. That moratorium expired in June and the IRS has resumed aggressive penalty assessments.
Many people, alarmed by audit notices, stopped taking deductions or funding their plan thinking that would end the problem. Unfortunately, as long as they continue to receive a tax benefit, annual reports are required. (One problem we have encountered is filing the listed transaction report only in the year the plan was created or funded.)
Filing the reports alerts the Service to pay extra scrutiny to these plans. For that reason, getting a "second opinion" is always wise advice, especially if purchasing the plan through a promoter or commissioned sales representative or agent.
Unfortunately a combination of zealous enforcement and misinformed promoters or promoters simply interested in making a commission has caused widespread compliance issues.
Lance Wallach is the Expert . Think twice before trusting an insurance agent or financial planner for complex advice. Better agents will often team up with an experienced professional to insure that the client investing is truly eligible for special tax treatment.
"Cookie cutter" legal opinions offered by some plan promoters are an invitation to disaster.
If you have a plan that fails IRS scrutiny, you may have recourse against the promoter or agent who sold it to you.
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Maryland Trial Lawyer
Small Business Retirement Plans Fuel Litigation
Dolan Media Newswires
Lance Wallach
January
Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.
The penalties for such transactions are extremely high and can pile up quickly.
There are business owners who owe taxes but have been assessed 2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.
A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.
Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed million.
Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.
Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.
According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.
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Tax Shelter Penalty Cases Hurt Thousands of Small Business Owners
Insurance agents and others sell 412i, 419, captive insurance and section 79 scams to unsuspecting business owners. The IRS considers many of these plans abusive tax shelters, listed transactions, reportable transactions, or what it calls "similar to," which allows them to target the plan. The unsuspecting business owners then get audited by the IRS, lose their deductions, and pay interest and penalties. Then comes the bad news. The IRS comes back and fines the business owners a large amount of money for not properly filing under IRC 6707A. They have even fined hundreds of business owners who have filed. The IRS says that they prepared the forms incorrectly or filed improperly, or lied to the IRS.
Taxpayers must report certain transactions to the IRS under Section 6707A of the Tax Code, which was enacted in 2004 to help detect, deter, and shut down abusive tax shelter activities. For example, reportable transactions may include being in a 419,412i, or other insurance plan sold by insurance agents for?tax deduction purposes. Other abusive transactions could include captive insurance?and section 79 plans, which are usually sold by insurance agents for tax deductions.?Taxpayers must disclose their participation in these and other transactions by filing a Reportable Transactions Disclosure Statement (Form 8886) with their income tax returns. People that sell these plans are called material advisors and must also file 8918 forms properly.?Failure to report the transactions could result in very large penalties. Accountants who sign tax returns that have these deductions can also be called material advisors and should also file forms 8918 properly.
You must also be careful of 412i, captive insurance and section 79 plans. Many of the abusive plans are sold by the same people that sold abusive 419 plans. Everyone should file under IRS 6707a to avoid additional IRS fines.
Who should you believe?
Google Lance Wallach and Google the man who sold you the plan.
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419, 412i, captive insurance and section 79 problems
Sometimes the IRS might disagree with planning you did with other advisors and you need to find help to ensure that your rights are protected, the facts are interpreted accurately and the law applied correctly. Lance Wallach is among the few in this country who fully understand the mechanics and legal issues surrounding what has become known as "419 Plans," 412i plans, captive insurance and section 79 programs. He wrote the book, that others read for CPE on these subjects. For that reason taxpayers throughout the country seek his services in dealing with the Internal Revenue Service in audits, appeals and in the Tax Court with his associates. As an expert witness Lance Wallach's side has never lost a case. Sometimes it is easy to get your money back with a letter.
Expert Witness
Frankly, not everybody does it right. Whether through ignorance or ill-intent, some folks sell insurance based programs with tax benefits, such as 419 Plans and 412(i) Plans, or promote premium financing or STOLI programs to unsuspecting consumers leaving the consumer to be attacked, either by the IRS or by a turn in the economy, when all goes wrong. But the opposite is also true. Some 419 Plans and 412(i) Plan are very well designed and flawlessly implemented but the IRS just shoots first and aims second. Some legitimate premium financing might miscue. Using Lances knowledge of life insurance and the many ways life insurance has been and can be used in tax and wealth planning, lawyers for both plaintiffs and defendants throughout the US seek Lances services as an expert witness in cases between consumers and those who sold them these programs that develop after the IRS, right or wrong, initiates an audit or the investment goes under water. In looking for an expert witness examine credentials: Use the man that wrote the book on this. Use the man's team that has never lost a case. Why use an attorney or CPA who will learn on the job. Why use an atty. or CPA that learned from one of Lance Wallach's books or conventions. Want to win. Want to be made whole. Want this problem to go away. Google Lance Wallach and anyone else and you decide who is see who is the true expert.
Give us a call and see how we can protect your present and plan for your future.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
ABOUT THE AUTHOR: Lance Wallach
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, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR, and captive insurance plans.
Copyright Lance Wallach, CLU, CHFC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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 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(c)(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 He does expert witness testimony and has never lost a case. Contact
him at 516.938.5007
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. |
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A Rose By Any Other Name
or
Whatever Happened to All Those 419A(f)(6) Providers
Enrolled Agents Journal March
By Ronald H. Snyder, JD, MAAA, EA & Lance Wallach, CLU, ChFC, CIMC
For years promoters of life insurance companies and agents have tried to find ways of claiming that the premiums paid by business owners were tax deductible. This allowed them to sell policies at a "discount".
The problem became especially bad a few years ago with all of the outlandish claims about how §§419A(f)(5) and 419A(f)(6) exempted employers from any tax deduction limits. Many other inaccurate statements were made as well, until the IRS finally put a stop to such assertions by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be disclosed and registered. This appeared to put an end to the scourge of such scurrilous promoters, as such plans began to disappear from the landscape.
And what happened to all the providers that were peddling §§419A(f)(5) and (6) life insurance plans a couple of years ago? We recently found the answer: most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.
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IRS Goes After Captive Insurance
by Lance Wallach | |
Life Insurance-IRS Goes After Captive Insurance
by Lance Wallach
Life insurance agents recently started pushing the newest variety of high-ticket items. After the IRS almost put 419 plans out of business and severely curtailed abusive 412i plans they needed another way to sell large commission life insurance policies. Many of the promoters of the 419 and 412i plans are now promoting section 79 and captive insurance plans. They claim that these plans allow businesses to tax deduct life insurance. As in the past, these promoters claim that most of the benefits would be for the business owners. I have been an expert witness in many cases against these abusive plans and my side has never lost a case.
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Listed Transactions
If you are in what the IRS calls a Listed Transaction, or something similar to it, you will probably receive a very large fine for each year that you have been in the program. You are fined whether or not you make a contribution. If an accountant signs a tax return for a client who is in a listed transaction, he is fined 100k for being what is called a material advisor. If an insurance agent, or someone else, sells one of these plans he is also probably a material advisor. We have assisted thousands of people in this situation. Once you receive the fine, we cannot help you. Usually, a lawsuit results. | |
Lance Wallach
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Irsform8886.com
IRS 8886 form - Find help filing new, or correcting improper forms
Description: irsform8886.com is your best source of help for proper completion of the IRS 8886 forms of 419e and 412i plans or any other plan that the IRS calls a listed transaction. |
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The Offices of Lance Wallach
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FAST PITCH NETWORKING
Posted: Dec. 10
By Lance Wallach
Here it is.
Here is your proof of my predictions. Perhaps you didn't believe me when I told you the IRS was coming after what it has deemed "abusive transactions," but here it is, right from the IRS's own job posting. If you were involved with a 419e, 412i, listed transaction, abusive tax shelter, Section 79, or captive, and you haven't yet approached an expert for help with your situation, you had better do it now, before the notices start piling up on
your desk.
A portion of the exact announcement from the Department of the Treasury:
Job Title: INTERNAL REVENUE AGENT (ABUSIVE TRANSACTIONS GROUP)
Agency: Internal Revenue Service
Open Period: Monday, October 18, 2010 to Monday, November 01, 2010
Sub Agency: Internal Revenue Service
Job Announcement Number: 11PH1-SBB0058-0512-12/13
Who May Be Considered:
· IRS employees on Career or Career Conditiona
l Appointments in the competitive service
· Treasury Office of Chief Counsel employees on Career or Career Conditional Appointments or with prior competitive status
· IRS employees on Term Appointments with potential conversion to a Career or Career Conditional Appointment in the same line of work
According to the job description, the agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietorships, small corporations, partnerships an
d fiduciaries. They will be examining tax returns and will "determine the correct tax liability, and identify situations with potential for understated taxes."
These agents will work in the Small Business/Self Employed Business Division (SB/SE) which provides examinations for about 7 million small businesses and upwards of 33 million self-employed and supplemental income taxpayers. This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms, and generally need to rely more on paid tax preparers." Their
examinations can contain "special audit features or anticipated accounting, tax law, or investigative issues," and look to make sure that, for example, specialty returns are filed properly.
The fines are severe. Under IRC 6707A, fines are up to $200,000 annually for not properly disclosing participation in a listed transaction. There was a moratorium on those fines until June 2010, pending new legislation to reduce them, but the new law virtually guarantees you will be fined. The fines had been $200,000 per year on the corporate level and $100,000 per year on the personal level. You got the fine even if you made no contributions for the year. All you had to do was to be in
the plan and fail to properly disclose your participation.
You can possibly still avoid all this by properly filing form 8886IMMEDIATELY with the IRS. Time is especially of the essence now. You MUST file before you are assessed the penalty. For months the Service has been holding off on actually collecting from people that they assessed because they did not know what Congress was going to do. But now they do know, so they are going to move aggressively to collection with people they have already assessed. There is no reason not to now. This is especially true because the new legislation still does not provide for a right of appeal or judicial review. The
Service is still judge, jury, and executioner. Its word is absolute as far as determining what is a listed transaction.
So you have to file form 8886 fast, but you also have to file it properly. The Service treats forms that are incorrectly filed as if they were never filed. You get fined for filing incorrectly, or for not filing at all. The Statute of Limitations does not begin unless you properly file. That means IRS can come back to get you any time in the future unless you file properly.
If you don't want these new IRS Agents, or any other IRS agents for that matter, to be earning their paychecks by coming after you, make sure you have done all you can to ensure that you have filed properly by reaching out for expert help today.
It's not worth it!
Stay away from 419 and similar plans like Section 79 plans. Be very careful with 412i plans. Avoid most captive insurance plans. It's getting closer to the end of the year. This is when every scammer known to man/woman comes out of the woodwork to sell some fly-by-night tax-deductible plan to clients. Sometimes they come in the form of an accountant, insurance agent-financial planner, or even an attorney. I see this in all of my expert witness cases and when I speak at conventions. I have seen this since the 1990s. I wanted to remind readers that, if it sounds too good to be true, it probably is. |
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