| 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 “Grist Mill Trust” “Penn Mont” “Real Veba” “United Financial Group” “Kenny Hartstein” “Millennium Plan” “Millennium Plan” “captive insurance” cresp “Ridge Plan” “Professional benefits Trust” PBT “ Dennis Cunning, Steve Toth, Michael Sonnenberg, Larry Bell, Scott Ridge, Randall Smith, Greg Roper, Tracy Sunderlage, 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, 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, |
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Late breaking news: Large 419 plan files for
Bankruptcy.
Recent court cases and other developments have highlighted serious problems in plans,
popularly know as Benistar, issued by Nova Benefit Plans of Simsbury, Connecticut. Recently
unsealed IRS criminal case information now raises concerns with other plans as well. If you
have any type plan issued by NOVA Benefit Plans, U.S. Benefits Group, Benefit Plan Advisors,
Grist Mill trusts, Rex Insurance Service or Benistar, get help at once. You may be subject to an
audit or in some cases, criminal prosecution.
On November 17th, 59 pages of search warrant materials were unsealed in the Nova Benefit
Plans litigation currently pending in the U.S. District Court for the District of Connecticut.
According to these documents, the IRS believes that Nova is involved in a significant criminal
conspiracy involving the crimes of Conspiracy to Impede the IRS and Assisting in the
Preparation of False Income Tax Returns. Read more here
Bankruptcy.
Recent court cases and other developments have highlighted serious problems in plans,
popularly know as Benistar, issued by Nova Benefit Plans of Simsbury, Connecticut. Recently
unsealed IRS criminal case information now raises concerns with other plans as well. If you
have any type plan issued by NOVA Benefit Plans, U.S. Benefits Group, Benefit Plan Advisors,
Grist Mill trusts, Rex Insurance Service or Benistar, get help at once. You may be subject to an
audit or in some cases, criminal prosecution.
On November 17th, 59 pages of search warrant materials were unsealed in the Nova Benefit
Plans litigation currently pending in the U.S. District Court for the District of Connecticut.
According to these documents, the IRS believes that Nova is involved in a significant criminal
conspiracy involving the crimes of Conspiracy to Impede the IRS and Assisting in the
Preparation of False Income Tax Returns. Read more here
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. Read more here
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. Read more here
Business Meals and Entertainment Expenses
Excerpt from FCICA Presents Tax, Insurance, and Cost Reduction Strategies for Small Business by
Lance Wallach
The 1993 tax law changed the amount allowable as a deduction for business meals and entertainment
expenses incurred after. In addition, some special rules were enacted into the tax law. The limitation for
deducting such expenses incurred after December 31, 1993 is 50%. Accordingly, after the general rules
and exceptions are applied to meals and entertainment expenses incurred and the total dollar amount is
determined, the 50% rule must then be applied. Business people must keep current with such rules or
face the wrath of the IRS. The purpose of this chapter is to explain the general rule, the exceptions, and
the special rules that are in effect for all business meals and entertainment expenses. Read more here!
IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section
79 Scams
By Lance Wallach June 2011
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, or substantially similar to such
transactions.
In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-115), 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 Court has stipulated, 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 is considered 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 a 412(i) plan.
· Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily
mean the plan engaged in 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,
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 filled in 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, lawallach@aol.com or visit www.vebaplan.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.
79 Scams
By Lance Wallach June 2011
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, or substantially similar to such
transactions.
In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-115), 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 Court has stipulated, 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 is considered 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 a 412(i) plan.
· Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily
mean the plan engaged in 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,
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 filled in 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, lawallach@aol.com or visit www.vebaplan.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.
