Lance Wallach - Use His Expertise to YOUR Advantage
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Why go to the students for your financial solutions when you
can go directly to the one who taught them?
Lance Wallach wrote the books on life insurance as well as
financial and estate planning that the accountants and other
consultants learned from!
For the past 25 years, successful businesses and
individuals have turned to Lance Wallach and his team of
accountants, attorneys, ex-IRS agents, and financial experts
for assistance, and they are glad they did!
can go directly to the one who taught them?
Lance Wallach wrote the books on life insurance as well as
financial and estate planning that the accountants and other
consultants learned from!
For the past 25 years, successful businesses and
individuals have turned to Lance Wallach and his team of
accountants, attorneys, ex-IRS agents, and financial experts
for assistance, and they are glad they did!
|
| Thanks offered for Lance Wallach's expertise: |
so much for taking the time to talk to me today about VEBAs. Any information you can send me would be helpful. Hopefully, we can work together in the future as interest in VEBAs increase." Corman G. Franklin Office of the Assistant Secretary for Policy U.S. Department of Labor |
Email correspondence Date: Wed, Jan 12, 2011 Happy New Year Mr. Wallach and thanks for the article Ron Ronald R. Itzkowitz National EP Customer Partnership Analyst Internal Revenue Service - Employee Plans |
| Every one of our consulting attorneys, CPAs & ex IRS Agents has over 25 years of professional experience! We believe that no firm has more experienced professionals to assist our clients than we do! |
| Books our Legal & Tax Audit Experts have authored: New & best selling American Institute of Certified Public Accountants books & courses:
Books by Bisk CPEasy, the nation's largest provider of Professional education:
By the National Society of Accountants
By John Wiley & Sons:
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“Lance is extraordinarily intelligent. He has few peers, if any, in his area of expertise. I unhesitatingly
recommend Lance.”
June 3, 2009
Gary Lesser, Owner, GSL Galactic Consulting
“Excellent results, Google him”
May 27, 2009
Larry Wilconsin,
“Lance is a true expert on VEBA Plans. Five years ago, he took the call of a total stranger, and in
doing so, he spent an hour helping me solve my client's problem. During the past five years Lance
consistently proven to be a valuable resource for me and my practice. He is a warm open person
who is willing to invest in others success. Hired Lance more than once.”
November 23, 2008
Don Atherton, CEBS, CFP, CLU, Owner, Integrated Benefits Solutions, Inc.
“Lance is a wonderful resource not just in regards to VEBAs, 412's, abusive plans and IRS codes, but
also who and what he knows about certain broker-dealers. I called him about recent changes to 412,
and got on the subject of broker-dealers, and he lent so much of his time to inform me about making
the right choice. He is a really great, personable colleague to people working in the financial
services business.”
November 3, 2008
Robert Thomas, Resident Insurance Producer, Independent Consulting
“Lance has been recognized by many organizations for his expertise as a speaker and writer on
employee benefit plans and other tax topics. You can't go wrong hiring him as a speaker or, if you
want to learn how you can participate in one of Lance's frequent book projects, he offers an easy
way to get yourself published for the first time so you can get a book in front of prospective clients
and/or professional colleagues.”
June 11, 2008
David Drucker, Principal, Virtual Office News LLC
“I have relied on Lance's valuable expertise on several occasion in assisting my clients with Veba's
(419 plans). Lance is definitely the person to help properly structure 412i and 419 plans and fix
plans that were improperly set-up.”
June 4, 2008
Sherry Oskey-Hall, Owner, Wealth Creation Strategies
"Since first calling Lance, he has taught me more about all aspects of insurance, income tax
nuances, and relatively unknown welfare benefit plans than I had learned in the years spent with
other well-regarded experts who had been in the same field for over 30 years. As a result, when
Lance becomes a consultant to any company or individual they not only get the benefit of his
immense knowledge, but they receive the knowledge of experts in any area of finance that will
benefit the client. Lance will never say, "I don't know too much about that." Instead he will say, 'Let
me put you in touch with an expert who is knows more about that than anyone in the country.' And
he means it."
Michael N. Kessler, M.D., M.A.
President, K & L Agency, LLC
Group Benefits Consulting”
February 24, 2008
Michael Kessler, Owner, K & L Agency, LLC
| You Don't Have To Just Take Our Word For It. Here's What Our Clients Have To Say |
ExpertTaxAdvisors.org
ReportableTransaction.com
ListedTransactions.com
Attorneys-usa.org
TaxLibrary.us
VebaPlan.org
Lawyer4Audits.com
section79plans.org
ReportableTransaction.com
ListedTransactions.com
Attorneys-usa.org
TaxLibrary.us
VebaPlan.org
Lawyer4Audits.com
section79plans.org
Retirement today Sept 2011
Participate in a 419 or 412i Plan or Other Abusive Tax Shelter You could
be fined a large amount of Money
Lance Wallach
Did you get a letter from the IRS threatening to impose this fine? If you haven’t already, you still
may. Consider yourself lucky if you have not because this means that you have more time to
straighten this situation out. Do not wait for this letter to come from the IRS before you call an
expert to help you. Even if you have been audited already, you could still get the letter and/or fine.
One has nothing to do with the other, and once the fine has been imposed, it is not able to be
appealed.
Many businesses that participated in a 412i retirement plan or the IRS is auditing a 419-welfare
benefit plan. Many of these plans were not in compliance with the law and are considered abusive
tax shelters. Many business owners are not even aware that the welfare benefit plan or retirement
plan that they are participating in may be an abusive tax shelter and that they are in serious
jeopardy of huge IRS penalties for each year that they have been in this type of plan.
Insurance companies, CPAs, sellers of these 419 welfare benefit plans or 412i retirement plans, as
well as anyone that gave tax advice or recommended participation in one or more of these plans,
also known as a material advisor, is in danger of being sued, fined by the IRS, or both.
There is help available if you think you may be involved with one of these 419 welfare benefit
plans, 412i retirement plans, or any abusive tax shelter. IRS penalty abatement is an option if you
act now. Feel free to contact me for more information. lancewallach.com
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. He speaks at more than ten conventions annually, writes for over fifty
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 the AICPA best-selling books, including Avoiding
Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert
witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com
or visit www.taxadvisorexpert.com.
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.
Participate in a 419 or 412i Plan or Other Abusive Tax Shelter You could
be fined a large amount of Money
Lance Wallach
Did you get a letter from the IRS threatening to impose this fine? If you haven’t already, you still
may. Consider yourself lucky if you have not because this means that you have more time to
straighten this situation out. Do not wait for this letter to come from the IRS before you call an
expert to help you. Even if you have been audited already, you could still get the letter and/or fine.
One has nothing to do with the other, and once the fine has been imposed, it is not able to be
appealed.
Many businesses that participated in a 412i retirement plan or the IRS is auditing a 419-welfare
benefit plan. Many of these plans were not in compliance with the law and are considered abusive
tax shelters. Many business owners are not even aware that the welfare benefit plan or retirement
plan that they are participating in may be an abusive tax shelter and that they are in serious
jeopardy of huge IRS penalties for each year that they have been in this type of plan.
Insurance companies, CPAs, sellers of these 419 welfare benefit plans or 412i retirement plans, as
well as anyone that gave tax advice or recommended participation in one or more of these plans,
also known as a material advisor, is in danger of being sued, fined by the IRS, or both.
There is help available if you think you may be involved with one of these 419 welfare benefit
plans, 412i retirement plans, or any abusive tax shelter. IRS penalty abatement is an option if you
act now. Feel free to contact me for more information. lancewallach.com
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. He speaks at more than ten conventions annually, writes for over fifty
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 the AICPA best-selling books, including Avoiding
Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert
witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com
or visit www.taxadvisorexpert.com.
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.
Abusive Insurance, Welfare Benefit, and Retirement Plans
The A2Z Directory March 2011
Lance Wallach
The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to
be abusive. Most insurance agents sell these plans. The IRS is looking to raise money and is not
looking to correct plans or help taxpayers. The IRS calls accountants, attorneys, and insurance
agents “material advisors” and also fines them the same amount, again unless the client’s
participation in the transaction is reported. An accountant is a material advisor if he signs the return
or gives advice and gets paid. More details can be found on www.irs.gov and vebaplan.org.
Bruce Hink, who has given me written permission to use his name and circumstances, is a perfect
example of what the IRS is doing to unsuspecting business owners. What follows is a story about
how the IRS fines him each year for being in what they called a listed transaction. Listed
transactions can be found at www.irs.gov. Also involved are what the IRS calls abusive plans or
what it refers to as substantially similar. Substantially similar to is very difficult to understand, but the
IRS seems to be saying, “If it looks like some other listed transaction, the fines apply.” Also, I
believe that the accountant who signed the tax return and the insurance agent who sold the
retirement plan will each be fined as material advisors. We have received many calls for help from
accountants, attorneys, business owners, and insurance agents in similar situations. Don’t think
this will happen to you? It is happening to a lot of accountants and business owners, because most
of theses so-called listed, abusive, or insurance agents are selling substantially similar plans.
Recently I came across the case of Hink, a small business owner who is facing thousands in IRS
penalties for 2004 and 2005 because of his participation in a section 412(i) plan. (The penalties
were assessed under section 6707A.)
In 2002 an insurance agent representing a 100-year-old, well-established insurance company
suggested the owner start a pension plan. The owner was given a portfolio of information from the
insurance company, which was given to the company’s outside CPA to review and give an opinion
on. The CPA gave the plan the green light and the plan was started. Contributions were made in
2003. The plan administrator came out with amendments to the plan, based on new IRS
guidelines, in October 2004. The business owner’s insurance agent disappeared in May 2005,
before implementing the new guidelines from the administrator with the insurance company. The
business owner was left with a refund check from the insurance company, a deduction claim on his
2004 tax return that had not been applied, and no agent.
It took six months of making calls to the insurance company to get a new insurance agent
assigned. By then, the IRS had started an examination of the pension plan. Asking advice from the
CPA and a local attorney (who had no previous experience in these cases) made matters worse,
with a “big name” law firm being recommended and additional legal fees being billed in three
months. To make a long story short, the audit stretched on for over 2 ½ years to examine a 2-year-
old pension with four participants and the 8,000 in contributions. During the audit, no funds went to
the insurance company, which was awaiting formal IRS approval on restructuring the plan as a
traditional defined benefit plan, which the administrator had suggested and the IRS had indicated
would be acceptable.In March 2008 the business owner received a private e-mail apology from the
IRS agent who headed the examination, saying that her hands were tied and that she used to
believe she was correcting problems and helping taxpayers and not hurting people.
Could you or one of your clients be next?
To this point, I have focused, generally, on the horrors of running afoul of the IRS by participating in a
listed transaction, which includes various types of transactions and the various fines that can be
imposed on business owners and their advisors who participate in, sell, or advice on these
transactions. I happened to use, as an example, someone in a section 412(i) plan, which was
deemed to be a listed transaction, pointing out the truly doleful consequences the person has
suffered. Others who fall into this trap, even unwittingly, can suffer the same fate.
Now let’s go into more detail about section 412(i) plans. This is important because these defined
benefit plans are popular and because few people think of retirement plans as tax shelters or listed
transactions. People therefore may get into serious trouble in this area unwittingly, out of ignorance
of the law, and, for the same reason, many fail to take necessary and appropriate precautions. The
IRS has warned against the section 412(i) defined benefit pension plans, named for the former
code section governing them. It warned against trust arrangements it deems abusive, some of
which may be regarded as listed transactions. Falling into that category can result in taxpayers
having to disclose the participation under pain of penalties. Targets also include some retirement
plans.
One reason for the harsh treatment of some 412(i) plans is their discrimination in favor of owners
and key, highly compensated employees. Also, the IRS does not consider the promised tax relief
proportionate to the economic realities of the transactions. In general, IRS auditors divide audited
plan into those they consider noncompliant and other they consider abusive. While the alternatives
available to the sponsor of noncompliant plan are problematic, it is frequently an option to keep the
plan alive in some form while simultaneously hoping to minimize the financial fallout from penalties.
The sponsor of an abusive plan can expect to be treated more harshly than participants. Although in
some situation something can be salvaged, the possibility is definitely on the table of having to treat
the plan as if it never existed, which of course triggers the full extent of back taxes, penalties, and
interest on all contributions that were made – not to mention leaving behind no retirement plan
whatsoever. Another plan the IRS is auditing is the section 419 plan. A few listed transactions
concern relatively common employee benefit plans the IRS has deemed tax avoidance schemes or
otherwise abusive. Perhaps some of the most likely to crop up, especially in small-business
returns, are the arrangements purporting to allow the deductibility of premiums paid for life
insurance under a welfare benefit plan or section 419 plan. These plans have been sold by most
insurance agents and insurance companies.
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. He speaks at more than ten conventions annually, writes for over fifty
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 the AICPA best-selling books, including Avoiding Circular 230
Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness
testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit
www.taxadvisorexperts.com
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.
The A2Z Directory March 2011
Lance Wallach
The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to
be abusive. Most insurance agents sell these plans. The IRS is looking to raise money and is not
looking to correct plans or help taxpayers. The IRS calls accountants, attorneys, and insurance
agents “material advisors” and also fines them the same amount, again unless the client’s
participation in the transaction is reported. An accountant is a material advisor if he signs the return
or gives advice and gets paid. More details can be found on www.irs.gov and vebaplan.org.
Bruce Hink, who has given me written permission to use his name and circumstances, is a perfect
example of what the IRS is doing to unsuspecting business owners. What follows is a story about
how the IRS fines him each year for being in what they called a listed transaction. Listed
transactions can be found at www.irs.gov. Also involved are what the IRS calls abusive plans or
what it refers to as substantially similar. Substantially similar to is very difficult to understand, but the
IRS seems to be saying, “If it looks like some other listed transaction, the fines apply.” Also, I
believe that the accountant who signed the tax return and the insurance agent who sold the
retirement plan will each be fined as material advisors. We have received many calls for help from
accountants, attorneys, business owners, and insurance agents in similar situations. Don’t think
this will happen to you? It is happening to a lot of accountants and business owners, because most
of theses so-called listed, abusive, or insurance agents are selling substantially similar plans.
Recently I came across the case of Hink, a small business owner who is facing thousands in IRS
penalties for 2004 and 2005 because of his participation in a section 412(i) plan. (The penalties
were assessed under section 6707A.)
In 2002 an insurance agent representing a 100-year-old, well-established insurance company
suggested the owner start a pension plan. The owner was given a portfolio of information from the
insurance company, which was given to the company’s outside CPA to review and give an opinion
on. The CPA gave the plan the green light and the plan was started. Contributions were made in
2003. The plan administrator came out with amendments to the plan, based on new IRS
guidelines, in October 2004. The business owner’s insurance agent disappeared in May 2005,
before implementing the new guidelines from the administrator with the insurance company. The
business owner was left with a refund check from the insurance company, a deduction claim on his
2004 tax return that had not been applied, and no agent.
It took six months of making calls to the insurance company to get a new insurance agent
assigned. By then, the IRS had started an examination of the pension plan. Asking advice from the
CPA and a local attorney (who had no previous experience in these cases) made matters worse,
with a “big name” law firm being recommended and additional legal fees being billed in three
months. To make a long story short, the audit stretched on for over 2 ½ years to examine a 2-year-
old pension with four participants and the 8,000 in contributions. During the audit, no funds went to
the insurance company, which was awaiting formal IRS approval on restructuring the plan as a
traditional defined benefit plan, which the administrator had suggested and the IRS had indicated
would be acceptable.In March 2008 the business owner received a private e-mail apology from the
IRS agent who headed the examination, saying that her hands were tied and that she used to
believe she was correcting problems and helping taxpayers and not hurting people.
Could you or one of your clients be next?
To this point, I have focused, generally, on the horrors of running afoul of the IRS by participating in a
listed transaction, which includes various types of transactions and the various fines that can be
imposed on business owners and their advisors who participate in, sell, or advice on these
transactions. I happened to use, as an example, someone in a section 412(i) plan, which was
deemed to be a listed transaction, pointing out the truly doleful consequences the person has
suffered. Others who fall into this trap, even unwittingly, can suffer the same fate.
Now let’s go into more detail about section 412(i) plans. This is important because these defined
benefit plans are popular and because few people think of retirement plans as tax shelters or listed
transactions. People therefore may get into serious trouble in this area unwittingly, out of ignorance
of the law, and, for the same reason, many fail to take necessary and appropriate precautions. The
IRS has warned against the section 412(i) defined benefit pension plans, named for the former
code section governing them. It warned against trust arrangements it deems abusive, some of
which may be regarded as listed transactions. Falling into that category can result in taxpayers
having to disclose the participation under pain of penalties. Targets also include some retirement
plans.
One reason for the harsh treatment of some 412(i) plans is their discrimination in favor of owners
and key, highly compensated employees. Also, the IRS does not consider the promised tax relief
proportionate to the economic realities of the transactions. In general, IRS auditors divide audited
plan into those they consider noncompliant and other they consider abusive. While the alternatives
available to the sponsor of noncompliant plan are problematic, it is frequently an option to keep the
plan alive in some form while simultaneously hoping to minimize the financial fallout from penalties.
The sponsor of an abusive plan can expect to be treated more harshly than participants. Although in
some situation something can be salvaged, the possibility is definitely on the table of having to treat
the plan as if it never existed, which of course triggers the full extent of back taxes, penalties, and
interest on all contributions that were made – not to mention leaving behind no retirement plan
whatsoever. Another plan the IRS is auditing is the section 419 plan. A few listed transactions
concern relatively common employee benefit plans the IRS has deemed tax avoidance schemes or
otherwise abusive. Perhaps some of the most likely to crop up, especially in small-business
returns, are the arrangements purporting to allow the deductibility of premiums paid for life
insurance under a welfare benefit plan or section 419 plan. These plans have been sold by most
insurance agents and insurance companies.
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. He speaks at more than ten conventions annually, writes for over fifty
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 the AICPA best-selling books, including Avoiding Circular 230
Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness
testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit
www.taxadvisorexperts.com
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.
Small Business Retirement Plans Fuel Litigation
Maryland Trial Lawyer
Dolan Media Newswires 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.
Because the IRS did not begin to focus audits on these types of plans until some years after they became listed
transactions, the penalties have already stacked up by the time of the audits.
Another reason plaintiffs are going to court is that there are few alternatives – the penalties are not appeasable and
must be paid before filing an administrative claim for a refund.
The suits allege misrepresentation, fraud and other consumer claims. “In street language, they lied,” said Peter
Losavio, a plaintiffs’ attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed
results. Losavio said that the strength of an individual case would depend on the disclosures made and what the
sellers knew or should have known about the risks.
In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs’
lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS
is auditing plans that existed before 2004.
“Insurance companies were aware this was dancing a tightrope,” said William Noll, a tax attorney in Malvern, Pa.
“These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn’t any
disclosure of the scrutiny to unwitting customers.”
A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans
complied with the regulations at the time and that “nobody can predict the future.”
An employee benefits attorney who has settled several cases against insurance companies, said that although the lost
tax benefit is not recoverable, other damages include the hefty commissions – which in one of his cases amounted to
400,000 the first year – as well as the costs of handling the audit and filing amended tax returns.
Defying the individualized approach an attorney filed a class action in federal court against four insurance
companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially
abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but “criminal.” A judge dismissed the
case against one of the insurers that sold 412(i) plans.
The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at
the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may
not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters
approving the plans, will appeal the dismissal to the 5th Circuit.
In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a
“seven-figure” sum in penalties and fees paid to the IRS. A trial is expected in August.
But tax experts say the audits and penalties continue. “There’s a bit of a disconnect between what members of
Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills
and threats of liens,” Wallach said. “Thousands of business owners are being hit with million-dollar-plus fines. … The
audits are continuing and escalating. I just got four calls today,” he said. A bill has been introduced in Congress to
make the penalties less draconian, but nobody is expecting a magic bullet.
“From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead
of a fixed amount.”
Lance Wallach can be reached at: WallachInc@gmail.com
For more information, please visit www.taxadvisorexperts.org 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. He speaks at more than ten conventions annually, writes for over fifty
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 the AICPA best-selling
books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does
expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit
www.taxadvisorexperts.com.
Lance Wallach
68 Keswick Lane
Plainview, NY 11803
Ph.: (516)938-5007
Fax: (516)938-6330 www.vebaplan.com
National Society of Accountants Speaker of The Year
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.
Massachusetts Society of Certified Public Accounts, Inc.
Winter 2010
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.
"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."
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. 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. Another important issue is that the IRS has called CPAs
material advisors if they signed tax returns containing the plan, and got paid a certain amount of
money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is
incorporated. To avoid the fine, the CPA has to properly file Form 8918.
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA
faculty of teaching professionals, Wallach is a frequent speaker on retirement plans, financial and
estate planning, and abusive tax shelters. He is also a featured writer and has been interviewed on
television and financial talk shows including NBC, National Pubic Radio’s All Things Considered
and others. Lance authored 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.
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.
Contact him at:
516.938.5007,
wallachinc@gmail.com, or
www.taxadvisorexperts.org, or
www.taxlibrary.us.