412i 419 captive insurance section 79 scams IRS audits

Message Author
ampm-bookmark
delicious-small Add to delicious
yahoomyweb-small Add to YahooMyWeb
blinklist-small Add to BlinkList
PostPosted: Tue Jul 19, 2011 7:38 pm   Post subject: 412i 419 captive insurance section 79 scams IRS audits  

WebCPA





The dangers of being "listed"

A warning for 419, 412i, Sec.79 and captive insurance



Accounting Today: October 25, 2010

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

($200,000 for a business and $100,000 for an individual) 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 has to be prepared correctly. I only know of two

people in the United States who have filed these forms properly for clients. They tell me that

was after hundreds of hours of research and over fifty phones calls to various IRS

personnel.



The filing instructions for Form 8886 presume a timely filing. 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 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. It

follows that taxpayers who no longer enjoy the benefit of those large deductions are no

longer "participating ' in the listed transaction. But that is not the end of the story.

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. This language may

provide the taxpayer with a solid argument in the event of an audit.



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, financial

and estate planning, and abusive tax shelters. He writes about 412(i), 419, 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 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 taxaudit419.com or taxlibrary.

us.



The information provided herein is not intended as legal, accounting, financial or any

other type of advice for any specific individual or other entity. You should contact an

appropriate professional for any such advice.


_________________
Register Now to have your Insurance queries solved.
lw
Guest







PostPosted: Fri Aug 05, 2011 6:57 am   Post subject:   

Thanks for the post on captive insurance, i wanted to understand the laws related to it and find it from your post.



_________________

business insurance
stevenricherd
Preferred member
Leave a quick message



Joined: 03 Mar 2011
Posts: 100


7.84 Dollars($)

PostPosted: Tue Aug 23, 2011 1:37 pm   Post subject:   

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.



Contact him at:

516.938.5007,

wallachinc@gmail.com, or

taxadvisorexperts.org, or

taxlibrary.us.


_________________
Register Now to have your Insurance queries solved.
Guest







PostPosted: Tue Aug 23, 2011 1:37 pm   Post subject:   

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.



Contact him at:

516.938.5007,

wallachinc@gmail.com, or

taxadvisorexperts.org, or

taxlibrary.us.


_________________
Register Now to have your Insurance queries solved.
Guest







Quick Reply
Your Name
Subject
Message body
All times are GMT
Page 1 of 1


Get a Quote
Ask Community Experts

flash plugin

Quick Links

Must See

Community

Hot topics in forums

Latest in blogs

AmPmInsure on Facebook



Page loaded in 0.284 seconds.