Welfare Benefit Plans - Big Risks for Accountants

Brian


Tens of thousands of welfare benefit plans are in existence. Some are legitimate but many are not. Unfortunately for taxpayers and their financial advisers, the IRS views all such plans with suspicion. These plans carry big risks for both the participants and the promoters. New enforcement actions by the IRS and civil claims by participants reveal the dangers for accountants as well.

Every year, many accountants sign returns in which their client claims a deduction for a welfare benefit plan. The IRS often considers these plans, created by section 419 of the Internal Revenue Code, to be listed transactions. In addition to the normal tax return disclosures, listed transactions must also be reported on Form 8886. Failure to properly file can lead to penalties of $100,000 for individuals and $200,000 for entities. Those penalties are per year!

Accountants must be certain they fully understand what transactions the IRS considers abusive. These transactions include certain 401(k) accelerated deductions, collectively bargained welfare benefit funds (sec. 419a(f)(5)), certain trust arrangements under section 419 and deductions for certain defined benefit plans (sec. 4129i)). It is important to remember that the IRS defines listed transactions to include any transaction that is substantially similar to one of the above.

Accountants can also get caught up in the penalty web if they were a material advisor. If you sign a return taking a deduction for one of these listed plans or if you sold the plan, you could find yourself facing significant penalties of $200,000 or more. (Material advisors must file IRS form 8918.)

Unscrupulous promoters often package their plans with legal opinion letters suggesting that their particular plan is not an abusive tax shelter and that the taxpayer need not comply with the Form 8886 filing requirement. Don't rely on those opinions. A third party opinion is no substitute for proper due diligence and review.

A second trap for unwary accountants is the civil liability they face. Financial planners and promoters market many of these plans. Often they are marketed through seminars. Some promoters offer commissions to lawyers and accountants who refer their clients. Earn a commission or opine on the tax deductibility of the plan and you may find yourself as a defendant in a lawsuit.

Many of these plans not only fail to deliver the promised tax benefits, they are complete scams or are constructed in such a way that taxpayers can't get their money back if circumstances change. When that happens, these same taxpayers will seek any deep pocket they can find. Often that is the accountant.

If a client has already made a contribution and purchased a plan, think long and hard as to whether you should sign the return without a thorough review and all required disclosures. It may be worthwhile to suggest the taxpayer find tax counsel. There is a risk of losing the client, of course, but is the risk worth the potential civil liability and penalties if the plan does not pass IRS muster?

Lance Wallach take on this article. I do not think it is all up to date. For more on 419 scams Google me or try www.taxaudit419.com for lots of articles. We have been helping people for years with these problems.

 Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies.  He is an American Institute of CPA’s course developer and instructor and has authored numerous best selling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications.  For more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us, lawyer4audits.com or call 516-938-5007

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.

5 comments:

  1. www.vebaplan.com for help
    Before I would jump into a captive I would have a client read klaas v commissioner us tax court 2009. For those interested you may find the case on the us tax court website.. go to opinion search and type in captive. Granted in klaas the taxpayer lost before the sham and step transaction were discussed,however it is clear our friends at the service are awaiting the next victim. The taxpayer escaped the 6663 fraud penalty but was hit with the 6662a penalty. However captives are beyond the discussion of this thread...but you happened to mention them. Reply »
    Roccy Defrancesco By Roccy DeFrancesco on Wed, 27th Feb 2013, 9:16 am
    I’ve read the Klass opinion and I’m not sure why anyone would use that case in connection with a useful discussion about captive insurance companies. Klass is an overtly abusive case where the client jumped through several hoops with tax avoidance as his initial and sole purpose. It has no similarities to the proper and traditional use of small CICs and to use it as a negative example is misplaced. Additionally, Klass uses a 501(c)15 CIC which really are no longer viable tools after the last law change (now 831(b) CICs are the tool of choice).

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  2. Abusive Tax Shelters
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.

    Monday, December 10, 2012

    Welfare Benefit Plans - Big Risks for Accountants



    Brian


    Tens of thousands of welfare benefit plans are in existence. Some are legitimate but many are not. Unfortunately for taxpayers and their financial advisers, the IRS views all such plans with suspicion. These plans carry big risks for both the participants and the promoters. New enforcement actions by the IRS and civil claims by participants reveal the dangers for accountants as well.

    Every year, many accountants sign returns in which their client claims a deduction for a welfare benefit plan. The IRS often considers these plans, created by section 419 of the Internal Revenue Code, to be listed transactions. In addition to the normal tax return disclosures, listed transactions must also be reported on Form 8886. Failure to properly file can lead to penalties of $100,000 for individuals and $200,000 for entities. Those penalties are per year!

    Accountants must be certain they fully understand what transactions the IRS considers abusive. These transactions include certain 401(k) accelerated deductions, collectively bargained welfare benefit funds (sec. 419a(f)(5)), certain trust arrangements under section 419 and deductions for certain defined benefit plans (sec. 4129i)). It is important to remember that the IRS defines listed transactions to include any transaction that is substantially similar to one of the above.

    Accountants can also get caught up in the penalty web if they were a material advisor. If you sign a return taking a deduction for one of these listed plans or if you sold the plan, you could find yourself facing significant penalties of $200,000 or more. (Material advisors must file IRS form 8918.)

    Unscrupulous promoters often package their plans with legal opinion letters suggesting that their particular plan is not an abusive tax shelter and that the taxpayer need not comply with the Form 8886 filing requirement. Don't rely on those opinions. A third party opinion is no substitute for proper due diligence and review.www.lancewallach.com

    ReplyDelete

  3. Abusive Tax Shelters
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.

    Thursday, December 20, 2012

    6707A Penalties & 419 Plans Litigation: A warning for 419, 412i, Sec.79 and captive insura...
    6707A Penalties & 419 Plans Litigation: A warning for 419, 412i, Sec.79 and captive insura...: Web CPA The dangers of being "listed" Accounting Today: October 25, 2010 By: Lance Wallach Taxpayers who previously adopted 419 pl...
    Posted by Lance Wallach at 1:44 PM No comments:
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    Labels: abusive tax shelters, IRS, IRS Audits, section 6707A Penalty
    Monday, December 10, 2012

    Welfare Benefit Plans - Big Risks for Accountants



    Brian


    Tens of thousands of welfare benefit plans are in existence. Some are legitimate but many are not. Unfortunately for taxpayers and their financial advisers, the IRS views all such plans with suspicion. These plans carry big risks for both the participants and the promoters. New enforcement actions by the IRS and civil claims by participants reveal the dangers for accountants as well.

    Every year, many accountants sign returns in which their client claims a deduction for a welfare benefit plan. The IRS often considers these plans, created by section 419 of the Internal Revenue Code, to be listed transactions. In addition to the normal tax return disclosures, listed transactions must also be reported on Form 8886. Failure to properly file can lead to penalties of $100,000 for individuals and $200,000 for entities. Those penalties are per year!

    ReplyDelete

  4. Abusive Tax Shelters
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.

    Thursday, December 20, 2012

    6707A Penalties & 419 Plans Litigation: A warning for 419, 412i, Sec.79 and captive insura...
    6707A Penalties & 419 Plans Litigation: A warning for 419, 412i, Sec.79 and captive insura...: Web CPA The dangers of being "listed" Accounting Today: October 25, 2010 By: Lance Wallach Taxpayers who previously adopted 419 pl...
    Posted by Lance Wallach at 1:44 PM No comments:
    Email This
    BlogThis!
    Share to Twitter
    Share to Facebook
    Share to Pinterest

    Labels: abusive tax shelters, IRS, IRS Audits, section 6707A Penalty
    Monday, December 10, 2012

    Welfare Benefit Plans - Big Risks for Accountants



    Brian


    Tens of thousands of welfare benefit plans are in existence. Some are legitimate but many are not. Unfortunately for taxpayers and their financial advisers, the IRS views all such plans with suspicion. These plans carry big risks for both the participants and the promoters. New enforcement actions by the IRS and civil claims by participants reveal the dangers for accountants as well.

    Every year, many accountants sign returns in which their client claims a deduction for a welfare benefit plan. The IRS often considers these plans, created by section 419 of the Internal Revenue Code, to be listed transactions. In addition to the normal tax return disclosures, listed transactions must also be reported on Form 8886. Failure to properly file can lead to penalties of $100,000 for individuals and $200,000 for entities. Those penalties are per year!

    ReplyDelete
  5. e Offices of Lance Wallach * 516-938-5007 * wallachinc@gmail.com
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    Mr. "Lance Wallach"

    Member of the AICPA faculty of teaching professionals

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