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Niche
Sea Nine Veba
SADI Trust
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Millennium
Bisys
Creative Services Group
Sterling Benefit Plan
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Niche 419
CRESP
American Benefits Trust
National Benefit Plan and Trust
ABT
Professional Benefits Trust
Old Mutual
Allmerica Financial
American Heritage Life
Commercial Union Life
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West Coast Life
ECI Pension Services
Pension Professionals of America
ABI
Hartford
AIG
Indy Life
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Advantage
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Minnesota Mutual
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USG Annuity & Life
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Old Mutual
Allmerica Financial
American Heritage Life
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section79plan.org
IRS6707Apenalty.com
IRSform8886.com
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Lance Wallach Newsletter July 2011 get large IRS fines. By Lance Wallach Life insurance agents recently have started pushing the newest variety of high ticket items. After the IRS has 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. These promoters as in the past 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. Recently my office has been receiving over fifty calls per month from people that are being threatened with large IRS fines. Most of these people (including CPAs) do not understand why this is happening. These fines are primarily the result of greed. Insurance company, insurance agent, plan promoter and even IRS greed. Insurance companies are always looking for ways to sell large amounts of life insurance. Taxpayers are constantly looking for larger tax deductions. Insurance agents want to earn large life insurance commissions. The IRS has started additional enforcement action against taxpayers and accountants. Taxpayers must report certain transactions to the IRS under Section 6707A of the tax code, to help detect, deter, and shut down abusive tax shelter activities. For example, reportable transactions may include participants in 419,412i, or other insurance plans sold by insurance agents for tax deduction purposes. Other abusive, listed or reportable 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 file form 8918 properly. Failure to report the transactions could result in huge potentially heinous monetary penalties. Accountants who sign tax returns that claim these deductions can also be called material advisors and should also file form 8918 properly. Not all 412i,captive insurance and Section 79 plans are abusive, listed or reportable transactions but almost all the Section 79 and captive insurance plans that I have recently seen are abusive. Recently I have had discussions with IRS personnel on point. But even as far back as 2002, I spoke at the annual national convention of the American Society of Pension Actuaries on potential abuses. I also was asked by the then acting IRS commissioner to meet with high level IRS executives to further discuss these issues. At this meeting with senior IRS officials, there was a speakerphone so that high level Treasury officials could listen in on the conversation. Within a year of this meeting, the IRS escalated attack on participants in 419 Welfare Benefit Plans. The IRS has fined hundreds of taxpayers who did file under 6707A. They said that they did not fill out the forms properly, or did not file correctly. The plan administrator or a 412i advised over 200 of his clients how to file. They were then all fined by the IRS for filling out the forms wrong. The fines averaged about $200,000 per taxpayer. A report by the Treasury Inspector General for Tax Administration (TIGTA) found that the procedures for documenting and assessing the Section 6707A penalty were not sufficient or formalized, and cases often are not fully developed. TIGTA evaluated the IRS’s effectiveness in identifying, developing, and applying the Section 6707A penalty. Based on its review of 114 assessed Section 6707A penalties, TIGTA determined that many of these files were incomplete or did not contain sufficient audit evidence. TIGTA also found a need for better coordination between the IRS’s Office of Tax Shelter Analysis and other functions. The Section 6707A penalty is a stand-alone penalty and does not require an associated income tax examination; therefore, it applies regardless of whether the reportable transaction results in an understatement of tax. TIGTA determined that, in most cases, the Section 6707A penalty was substantially higher than additional tax assessments taxpayers received from the audit of underlying tax returns. I have had phone calls from taxpayers that contributed less than $100,000 to a listed or reportable transaction and were fined over $500,000. I have had phone calls from taxpayers that went into 419 or 412i plans, made no contributions, but nevertheless were fined a large amount of money for being in a listed transaction and not properly filing forms under IRC section 6707A. The IRS claims that the fines are non-appealable. If you are, or were in a 412i, 419, captive insurance or section 79 plan you should immediately file under 6707A protectively. If you have already filed you should find someone who knows what he is doing to review the forms. I only know of two people who know how to properly file. The IRS instructions are vague and are useless if you are filing late since they presume a timely file. If a taxpayer files wrong, or fills out the forms wrong he still gets the fine. I have had hundreds of phone calls from people in that situation. 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 and section 79 plans. He speaks at more than ten conventions annually, writes for more than 20 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and his side has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com, or visit www.taxaudit419.com or www.taxlibrary.us. 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. |
United States District Court,
District of Massachusetts
IANTOSCA LLC v. STEP
PLAN SERVICES INC 419 LLC
Prejudgement Summary
Court Cases on the Rise
Judicial Review (McGehee)
District of Massachusetts
IANTOSCA LLC v. STEP
PLAN SERVICES INC 419 LLC
Prejudgement Summary
Court Cases on the Rise
Judicial Review (McGehee)
Court Case Research