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IRS Audits Focus on Captive Insurance Plans
Lance Wallach
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  • The Millennium Plan
  • SADI Trust
  • The Beta Plan - Hartford -
    PAC Life
  • Compass Welfare Benefit
  • Sea Nine VEBA - Bisys
  • Professional Benefits Trust
  • Advantage - Sterling - Cresp
  • Heritage Plan - Indianpolis
    Life Penmont - and litigation
    invovling other similar 412i
  • Retirement plans
  • 419 Welfare Benefit plans
Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans
    Lance Wallach, CLU, CHFC
    HG Experts

IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A - 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 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 also has to be prepared
correctly. I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after
hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886
presume a timely filling. 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.

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