| 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” Kenny Hartstein” “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, |
IRSform8886.com
| Get Help at 516 935-7346 NOW! |
| Relevant Links and resources regarding the importance of for proper completion of the"8886" forms for "419" and "412i" plans, Captive Insurance, Section 79, or any plan the IRS calls a "listed transaction". |
| Call 516-935-7346 for immediate assistance with this potentially costly problem |
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| Useful Information and Links about IRS Form 8886 |
Call the experts today at 516-935-7346
| Click HERE to find out how to start correcting your errors. More Links: Highlights of § 6707A Temporary and Proposed Regulations IRS 8886 form IRS 6707A Penalties New Penalty Section 6707A and Rescission Authority |
| ____________________ State compliance: Some state tax departments have "listed transaction" reporting rules in addition to the federal reporting. Depending on your state, you may have to file amended returns there in addition to your federal requirements. |
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 http://www.irs.gov and http://www.vebaplan.com.
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 http://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.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.
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 http://www.irs.gov and http://www.vebaplan.com.
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 http://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.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.