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PostPosted: Mon Jun 22, 2015 11:50 am   Post subject: get sued  

Auditing 412(i) Plans

IRS Auditing 412(i) Plans

recently been auditing 412(i)

defined-benefit pension plans.

They are seeking substantial taxes and

penalties from what they characterize as

“abusive plans,” but they do not regard all 412

(i) plans as necessarily abusive. A properly

structured and administered 412(i) plan can

be an invaluable tax reduction tool for a

business, but care must be taken.

In addition, the IRS is stepping up its

examinations of companies’ retirement plans

this year, aiming to catch those that are

cheating their workers or the government,

and to ensure that the plans meet federal

regulations. The offerings to be examined

include traditional pensions, 401(k)s and

profit-sharing plans.

A few years ago, when I spoke at the national

convention of the American Society of

Pension Professionals and Actuaries about

VEBAs, the IRS spoke about their 412(i)

concerns. Since then, they have escalated

their challenges to “abusive” 412(i) plans. In

fact, certain plans are on the IRS list of

abusive tax transactions.

Taxpayers who participate in “listed

transactions” are required to report them to

the IRS or face substantial penalties

($100,000 in the case of individuals, and

$200,000 in the case of entities). In addition,

“material advisors” to these plans are required

to maintain certain records and turn them

over to the IRS on demand.

When I addressed the 2005 annual

convention of the National Society of Public

Accountants, the IRS spoke about Circular

230. My impression was that if an

accountant signed a tax return that disclosed

involvement in a listed and/or abusive tax

transaction, there could be Circular 230


Most accountants are not familiar with 412(i)

plans. They are a type of defined-benefit

pension plan that allows a large contribution.

The funding vehicles are usually fixed

annuities and fixed life insurance. They are

traditionally sold by life insurance

professionals and financial planners.

Given the substantial taxes and penalties that

may be assessed if the IRS concludes that a

412(i) plan has not been properly structured

or administered,


The IRS is aiming to catch

companies that are cheating their

workers or the government.


especially if it concludes that the plan is a

listed transaction, it is important that the

taxpayer know the rules.

The accountant should also be aware of them.

The fact that a plan is being sold by an

insurance company does not make it safer.

Recently the IRS has taken action against

plans sold by 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, 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 reg

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