| Benistar, SADI Trust,Beta 419,Millennium Plan,Bisys,Creative Services Group,Sterling Benefit Plan, Compass 419,Niche 419,CRESP,Sea Nine Veba, American Benefits Trust, National Benefit Plan and Trust, ABT, Professional Benefits Trust Benistar 419 Plan, Millennium 419 Plan,Bisys 419,Creative Services Group 419 Plan,Sterling Benefit 419 Plan,CRESP 419,Sea Nine Veba 419, National Benefit Plan and Trust 419, American Benefits Trust 419,ABT 419,Old Mutual “Grist Mill Trust” “Penn Mont” “Real Veba””Section 79 GEAR” GEAR” “United Financial Group” “Kenny Hartstein” “Millennium Plan” Kenny Hartstein” “Millennium Plan” “captive insurance” cresp “Ridge Plan” “Professional benefits Trust” “PBT “ “Professional Planning Associates” “National Pension Associate” “NPA””Heritage Plan” ”"Insurance fraud""pension and benefit plan fraud" “insurance company fraud"”ECI Pension Services””Pension Professionals of America””ABI”” Hartford””AIG””Indy Life””Indianapolis Life””Advantage” “Kenny Hartstein””Dennis Cunning””Steve Toth””Michael Sonnenberg”Larry Bell””Scott Ridge”” Randall Smith””Greg Roper””Tracy Sunderlage””Warren Trust””Joseph Donnelly””Norm Bevan”” Judy Carsrud””Dan Carpenter””Ed Waesche””Daniel Hwang” “Tom Crosswhite””David Struckman”” George Huff” Hartford 419, Pacific Life 419, PAC Life 419, AVIVA, 419, Indianpolis Life, Penn Mutual419,Bankers Life 419, John Hancock 419, Security Mutual 419, Transamerica 419,Prudential 419, Kansas City Life 419, Mass Mutual419, Guardian 419, Amerus 419, Wells Fargo 419, Fifth Third Bank 419, Arrow Head Trust 419, U.S. Benefits Group, Benefit Plan Advisors, Rex Insurance Service,Advantage,AIG, Hartford 412, Pacific Life 412, PAC Life 412, AVIVA, 412, Indianpolis Life, Penn Mutual412,Bankers Life 412, John Hancock 412, Security Mutual 412, Transamerica 412,Prudential 412, Kansas City Life 412, Mass Mutual412, Guardian 412, Amerus 412, U.S. Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service |
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| Lance is an expert about: Get Him On Your Side: The Millennium Plan - SADI Trust - The Beta Plan - Hartford - PAC Life - Niche - Benistar - The Grist Mill Trust - Compass Welfare Benefit Plan - Sea Nine VEBA - Bisys - Professional Benefits Trust (PBT) - Advantage - Sterling - Cresp - Heritage Plan - Indianpolis Life - Penmont - and litigation invovling other similar 412i retirement plans and 419 welfare benefit plans |
| For more about: Reportable transactions Shelters 419e 412i Visit these websites: taxaudit419.com irsdog.com taxlibrary.us irs.gov listedtransactions |
Ford Motor benefits Fri, 11 Jan 2008 Subject: VEBAs Dear Mr. Wallach, It as a pleasure speaking with you this afternoon. I appreciate the time you spent listening and the giving of your advice. Next week, we, a small splinter union (IAM) within a large Ford Motor facility, at Cleveland Casting Plant will be negotiating our contract. This site is mostly represented by the UAW who have already consummated their contract with Ford Motor Company, and has accepted the VEBA option for their retirees. Their VEBA will be run by the UAW and whoever they decide to confide in to execute the health care benefit and the investments with the millions that Ford Motor will hand over to them, and then Ford will wash their hands of any more health care responsibilities. Our IAM negotiations start Jan. 14th. The small group of individuals that will be across the table from the experts representing Ford Motor, are comprised of a few elected people that are Pattern Maker/Machinist by trade. We have no one of any particular expertise in finance, healthcare, or investment. We are expected to come to terms with little, to no knowledge or leverage of the task set before us. We have 1300 people's lives that will be affected by these negotiations. It is a shame that the larger unions will not step up to the plate and help with the terms that we are faced with. Ford Motor will use this to their advantage to squeeze a few more dollars out of our pockets. Thank you again for your generous contribution of foresight and knowledge to the concerns facing the American workers in this globalistic battle for the bottom line. Sincerely, Mark A. Gwynn IAM Benefits Rep. Ford Motor Cleveland Casting Plant |
| Don't Just Take Our Word For It. Here is what our clients have to say. |
Learn From Our Experts: "Mr. Wallach, thanks 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 |
| His research and insights have proved right on the money!” February 21, 2011 Debra Rothberg, “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.” 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 occasions 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. I have yet to hear of anyone that has been disappointed for calling upon Lance Wallach for advice or assistance. He is truly at the top of his field. Michael N. Kessler, M.D., M.A. President, K & L Agency, LLC February 24, 2008 Michael Kessler, Owner, K & L Agency, LLC “Lance is perhaps the country's foremost expert at establishing various kinds of employee benefit programs for companies and individuals and also highly knowledgeable about the programs that do not meet the legal requirements of the Internal Revenue Service. He is a well known author, has spoken at numerous meetings attended by financial services practitioners and is the professional you want on your side when the IRS comes calling.” February 5, 2008 Bill Goodwill, “Lance is a pleasure to work with, very knowledgeable.” February 4, 2008 Paul Rosen, President, Paul J Rosen Financial Services Inc. “Lance is an expert in little known tax reduction techniques for profitable business owners.” February 4, 2008 Matthew Tuttle, Owner, Tuttle Wealth Mgmt, LLC |
| 516-938-5007 |
IRS Audits 419, 412i, Captive Insurance Plans
With Life Insurance, and Section 79 Scams
Article Biz June 2011
Lance Wallach
The IRS started auditing 419 plans in the ‘90s, and then continued
going after 412i and other plans that they considered abusive, listed,
or reportable transactions. Listed designated as listed in published
IRS material available to the general public or transactions that are
substantially similar to the specific listed transactions. A reportable
transaction is defined simply as one that has the potential for tax
avoidance or evasion.
In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-
15), the Tax Court ruled that an investment in an employee welfare
benefit plan marketed under the name "Benistar" was a listed
transaction in that the transaction in question was substantially
similar to the transaction described in IRS Notice 95-34. A
subsequent case, McGehee Family Clinic, largely followed Curcio,
though it was technically decided on other grounds. The parties
stipulated to be bound by Curcio on the issue of whether the
amounts paid by McGehee in connection with the Benistar 419 Plan
and Trust were deductible. Curcio did not appear to have been
decided yet at the time McGehee was argued. The McGehee opinion
(Case No. 10-102) (United States Tax Court, September 15, 2010)
does contain an exhaustive analysis and discussion of virtually all of
the relevant issues.
Taxpayers and their representatives should be aware that the
Service has disallowed deductions for contributions to these
arrangements. The IRS is cracking down on small business owners
who participate in tax reduction insurance plans and the brokers who
sold them. Some of these plans include defined benefit retirement
plans, IRAs, or even 401(k) plans with life insurance.
In order to fully grasp the severity of the situation, one must have an
understanding of Notice 95-34, which was issued in response to trust
arrangements sold to companies that were designed to provide
deductible benefits such as life insurance, disability and severance
pay benefits. The promoters of these arrangements claimed that all
employer contributions were tax-deductible when paid, by relying on
the 10-or-more-employer exemption from the IRC § 419 limits. It was
claimed that permissible tax deductions were unlimited in amount.
In general, contributions to a welfare benefit fund are not fully
deductible when paid. Sections 419 and 419A impose strict limits on
the amount of tax-deductible prefunding permitted for contributions
to a welfare benefit fund. Section 419A(F)(6) provides an exemption
from Section 419 and Section 419A for certain "10-or-more
employers" welfare benefit funds. In general, for this exemption to
apply, the fund must have more than one contributing employer, of
which no single employer can contribute more than 10% of the total
contributions, and the plan must not be experience-rated with
respect to individual employers.
According to the Notice, these arrangements typically involve an
investment in variable life or universal life insurance contracts on the
lives of the covered employees. The problem is that the employer
contributions are large relative to the cost of the amount of term
insurance that would be required to provide the death benefits under
the arrangement, and the trust administrator may obtain cash to pay
benefits other than death benefits, by such means as cashing in or
withdrawing the cash value of the insurance policies. The plans are
also often designed so that a particular employer’s contributions or
its employees’ benefits may be determined in a way that insulates
the employer to a significant extent from the experience of other
subscribing employers. In general, the contributions and claimed tax
deductions tend to be disproportionate to the economic realities of
the arrangements.
Benistar advertised that enrollees should expect to obtain the same
type of tax benefits as listed in the transaction described in Notice 95-
34. The benefits of enrollment listed in its advertising packet
included:
Virtually unlimited deductions for the employer;
Contributions could vary from year to year;
Benefits could be provided to one or more key executives on a
selective basis;
No need to provide benefits to rank-and-file employees;
Contributions to the plan were not limited by qualified plan rules and
would not interfere with pension, profit sharing or 401(k) plans;
Funds inside the plan would accumulate tax-free;
Beneficiaries could receive death proceeds free of both income tax
and estate tax;
The program could be arranged for tax-free distribution at a later
date;
Funds in the plan were secure from the hands of creditors.
The Court said that the Benistar Plan was factually similar to the
plans described in Notice 95-34 at all relevant times.
In rendering its decision the court heavily cited Curcio, in which the
court also ruled in favor of the IRS. As noted in Curcio, the insurance
policies, overwhelmingly variable or universal life policies, required
large contributions relative to the cost of the amount of term
insurance that would be required to provide the death benefits under
the arrangement. The Benistar Plan owned the insurance contracts.
Following Curcio, as the parties had stipulated, on the question of
the amnesty paid by Mcghee in connection with benistar, the Court
held that the contributions to Benistar were not deductible under
section 162(a) because participants could receive the value
reflected in the underlying insurance policies purchased by
Benistar—despite the payment of benefits by Benistar seeming to be
contingent upon an unanticipated event (the death of the insured
while employed). As long as plan participants were willing to abide by
Benistar’s distribution policies, there was no reason ever to forfeit a
policy to the plan. In fact, in estimating life insurance rates, the
taxpayers’ expert in Curcio assumed that there would be no
forfeitures, even though he admitted that an insurance company
would generally assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May
2001 and claimed deductions for contributions to it in 2002 and
2005. The returns did not include a Form 8886, Reportable
Transaction Disclosure Statement, or similar disclosure.
The IRS disallowed the latter deduction and adjusted the 2004 return
of shareholder Robert Prosser and his wife to include the $50,000
payment to the plan. The IRS also assessed tax deficiencies and the
enhanced 30% penalty totaling almost $21,000 against the clinic and
$21,000 against the Prossers. The court ruled that the Prossers
failed to prove a reasonable cause or good faith exception.
More you should know:
In recent years, some section 412(i) plans have been funded with life
insurance using face amounts in excess of the maximum death
benefit a qualified plan is permitted to pay. Ideally, the plan should
limit the proceeds that can be paid as a death benefit in the event of
a participant’s death. Excess amounts would revert to the plan.
Effective February 13, 2004, the purchase of excessive life
insurance in any plan makes the plan a listed transaction if the face
amount of the insurance exceeds the amount that can be issued by
$100,000 or more and the employer has deducted the premiums for
the insurance.
A 412(i) plan in and of itself is not a listed transaction; however, the
IRS has a task force auditing 412i plans.
An employer has not engaged in a listed transaction simply because
it is in a 412(i) plan.
Just because a 412(i) plan was audited and sanctioned for certain
items, does not necessarily mean the plan is a listed transaction.
Some 412(i) plans have been audited and sanctioned for issues not
related to listed transactions.
Companies should carefully evaluate proposed investments in plans
such as the Benistar Plan. The claimed deductions will not be
available, and penalties will be assessed for lack of disclosure if the
investment is similar to the investments described in Notice 95-34. In
addition, under IRC 6707A, IRS fines participants a large amount of
money for not properly disclosing their participation in listed or
reportable or similar transactions; an issue that was not before the
Tax Court in either Curcio or McGehee. The disclosure needs to be
made for every year the participant is in a plan. The forms need to
be properly filed even for years that no contributions are made. I
have received numerous calls from participants who did disclose and
still got fined because the forms were not prepared properly. A plan
administrator told me that he assisted hundreds of his participants
file forms, and they still all received very large IRS fines for not
properly filling in the forms.
IRS has been attacking all 419 welfare benefit plans, many 412i
retirement plans, captive insurance plans with life insurance in them,
and Section 79 plans.
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.
| Accounting Today Don’t Become a ‘Material Advisor’ July 1, 2011 By Lance Wallach Accountants, insurance professionals and others need to be careful that they don’t become what the IRS calls material advisors. If they sell or give advice, or sign tax returns for abusive, listed or similar plans; they risk a minimum $100,000 fine. They will then probably be sued by their client, when the IRS finishes with their client In 2010, the IRS raided the offices of Benistar in Simsbury, Conn., and seized the retirement benefit plan administration firm’s files and records. In McGehee Family Clinic, the Tax Court ruled that a clinic and shareholder’s investment in an employee benefit plan marketed under the name “Benistar” was a listed transaction because it was substantially similar to the transaction described in Notice 95-34 (1995-1 C.B. 309). This is at least the second case in which the court has ruled against the Benistar welfare benefit plan, by denominating it a listed transaction. The McGehee Family Clinic enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886, Reportable Transaction Disclosure Statement, or similar disclosure. The IRS disallowed the latter deduction and adjusted the 2004 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. The IRS assessed tax deficiencies and the enhanced 30 percent penalty under Section 6662A, totaling almost $21,000, against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception. In rendering its decision, the court cited Curcio v. Commissioner, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, which were overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The Benistar Plan owned the insurance contracts. The excessive cost of providing death benefits was a reason for the court’s finding in Curcio that tax deductions had been properly disallowed. As in Curcio, the McGehee court held that the contributions to Benistar were not deductible under Section 162(a) because the participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapse. Companies should carefully evaluate their proposed investments in plans such as the Benistar Plan. The claimed deductions will be disallowed, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34, that is, if the transaction is a listed transaction and Form 8886 is either not filed at all or is not properly filed. The penalties, though perhaps not as severe, are also imposed for reportable transactions, which are defined as transactions having the potential for tax avoidance or evasion. Insurance agents have been selling such abusive plans since the 1990's. They started as 419A(F)(6) plans and abusive 412i plans. The IRS went after them. They then evolved to single-employer 419(e) plans, which the IRS also went after. The latest scams may be the so-called captive insurance plan and the so called Section 79 plan. While captive insurance plans are legitimate for large corporations, they are usually not legitimate for small business owners as a way to obtain a tax deduction. I have not yet seen a legitimate Section 79 plan. Recently, I have sent some of the plan promoters’ materials over to my IRS contacts, who were very interested in receiving them. Some of my associates are already trying to help defend some unsuspecting business owners who are being audited by the IRS with respect to these plans. Similar, though perhaps not as abusive, plans fail after the IRS goes after them. Niche was one example. The company first marketed a 419A(F)(6) plan that the IRS audited. They then marketed a 419 (e) plan that the IRS audited. Niche, insurance companies, agents, and many accountants were then sued after their clients lost their deductions, paid fines, interest, and penalties, and then paid huge fines for failure to file properly under 6707A. Niche then went out of business. Millennium sold 419A(F)(6) plans and then 419(e) plans through insurance companies. They stupidly filed for a private letter ruling to the effect that they were not a listed transaction. They got exactly the opposite: a private letter ruling saying that they were a listed transaction. Then many participants were audited. The IRS disallowed the deductions, imposed penalties and interest, and then assessed large fines for not filing properly under Section 6707A. The result was lawsuits against agents, insurance companies and accountants. Millennium sought bankruptcy protection after a lot of lawsuits. I have been an expert witness in a lot of the lawsuits in these 419, 412i, etc., plans, and my side has never lost a case. I have received thousands of phone calls over the years from business owners, accountants, angry plan promoters, insurance agents, etc. In the 1990's, when I started writing for the AICPA and other publications warning about these abusive plans, most people laughed at me, especially the plan promoters. In 2002, when I spoke at the annual national convention of the American Society of Pension Actuaries in Washington, people took notice. The IRS chief actuary Jim Holland also held a meeting, similar to mine on abusive 412i plans. Many IRS agents attended my meeting. I was also invited to IRS headquarters, at the request of the acting IRS commissioner, to meet with high-level IRS officials and Treasury officials to discuss 419 issues in depth, which I did after the meeting. The IRS then set up task forces and started going after 419 and 412i plans. I have been warning accountants to properly file under 6707A to avoid the large fines, but most do not. Even if they file, if they make a mistake on the forms the IRS fines. Very few accountants have had experience filing the forms, and the IRS instructions are difficult to follow. I only know of two people who have been successful in properly filing the forms, especially after the fact. If the forms are filled out wrong they should be amended and corrected Most accountants call me a few years later when they and their clients get the large fines, either after improperly filling out the forms or not doing them at all, but then it is too late. If they don’t call me then, then they call me when their clients sue them. Lance Wallach is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters, and writes about 412(i), 419 and captive insurance plans. He can be reached at (516) 938- 5007, lawallach@aol.com, or visit www.vebaplan. 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. |