Section 79 & 419 Plans Litigation: Section 79 Plans            Most people have neve...

Section 79 & 419 Plans Litigation: Section 79 Plans
            Most people have neve...
: Section 79 Plans              Most people have never heard of what we call in the industry a Section 79 Plan.                     ...

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  1. NCCPAP November 2010 Newsletter 2010

    Business Owners in 419, 412i, Section 79 and Captive Insurance Plans Will Probably Be Fined by the IRS 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 the taxpayer does not necessarily have to make a contribution or claim a tax deduction to be deemed 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 a taxpayer can also be in trouble if they file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only does
    the taxpayer 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 told me that the form was prepared 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
    they 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.

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  2. prior years. 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; speaks at more than ten conventions annually; writes for over fifty publications; is quoted regularly in the press; and has been featured on TV and radio financial talk shows. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams (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 www.taxadvisorexperts.org or www.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.

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  3. Lance Wallach Life Insurance

    Thursday, February 27, 2014
    Captive Insurance Buyer Beware
    Hg Experts
    Legal Experts Directory


    Captive Insurance Buyer Beware
    By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

    Is a captive insurance cell the way to go? - Accounting Today - Captive Insurance: Achieve large tax and cost reductions by renting a “CAPTIVE”. Most accountants and small business owners are unfamiliar with a great way to reduce taxes and expenses. By either creating or sharing “a captive insurance company”, substantial tax and cost savings will benefit the small business owner.

    Over 80% of Fortune 500 companies take advantage of some kind of captive insurance company arrangement. They set up their own insurance companies to provide coverage when they think outside insurers are charging too much, or coverage is simply unavailable. The parent company creates a captive so that it has a self-financing option for buying insurance. The captive then either retains the risk of providing insurance or pays reinsurers (companies that reinsure insurers) to take the risk.

    If you buy insurance from a standard insurance company, your money buys a service, but the money is spent and gone forever. When you utilize or “rent a captive”, your money buys a service but it is invested with a good possibility of a return.

    In the event of a claim, the company pays claims from its captive or from its reinsurer. To keep costs down, captives are often based in places where there is favorable tax treatment and less onerous regulation (i.e. Vermont, South Carolina, and Bermuda).

    Optimum utilization of a captive by a small business, medical practice, or professional.

    The best way for a small business, medical practice, etc., to take advantage of captive benefits is to share or rent a large captive. You can significantly decrease your costs of insurance and obtain tax deductions at the same time. There are, as well, significant tax advantages to renting a large captive as opposed to owning a captive.

    The advantages of “renting a captive” become apparent when you consider that the single parent captive may be forced to use less than adequate standards or marginal service so they can meet the financial requirements associated with the initial general licensing and administrative costs of establishment. Additionally, when renting a large captive, the captive bears the burden

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  4. Lance Wallach
    Lance Wallach: For Expertise You Won't Find Anywhere Else
    Speaker of the Year and member of the
    AICPA faculty of teaching professionals
    Frequent speaker on retirement plans,
    financial and estate planning, and abusive
    tax shelters
    Writes about 412(i), 419, and captive
    insurance plans
    Speaks at more than ten conventions
    annually
    Writes for more than 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
    Author of Protecting Clients from Fraud,
    Incompetence and Scams published by
    John Wiley and Sons
    Author of Bisk Education's CPA's Guide to
    Life Insurance and Federal Estate and Gift
    Taxation
    Author of AICPA best-selling books,
    including Avoiding Circular 230 Malpractice
    Traps and Common Abusive Small
    Business Hot Spots
    Authored numerous articles in professional
    publications aimed at accountants,
    attorneys and tax advisors

    FinanceExperts.org
    AccountantExpert.org
    ExpertTaxAdvisors.org
    ReportableTransaction.com
    ListedTransactions.com
    Attorneys-usa.org
    TaxLibrary.us
    VebaPlan.org
    Lawyer4Audits.com
    irsform8886.com
    irs6707apenalty.com
    Section79plan.org
    Additional Resources
    Lance is an expert
    Get Him On Your Side:

    The Millennium Plan
    SADI Trust
    The Beta Plan - Hartford - PAC Life
    Niche - Benistar - The Grist Mill Trust
    Compass Welfare Benefit Plan
    Sea Nine VEBA - Bisys
    Professional Benefits Trust (PBT)
    Advantage - Sterling - Cresp
    Heritage Plan - Indianpolis Life Penmont - and
    litigation invovling other similar 412i
    Retirement plans
    419 Welfare Benefit plans

    Happy New Year Mr. Wallach and thanks for
    the article

    Ronald R. Itzkowitz
    National EP Customer Partnership Analyst
    Internal Revenue Service - Employee Plans

    "Mr. Wallach, thanks so much for taking the time to talk to me today about VEBAs. Any information you can
    send me would be helpful. Hopefully, we can work together in the future as interest in VEBAs increase."

    Corman G. Franklin Office of the Assistant Secretary for Policy U.S. Department of Labor

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  5. Lance Wallach
    October 16, 2012 ·
    Section 79, captive insurance, 412i, 419, audits, problems and lawsuits
    April 24, 2012 By Lance Wallach, CLU, CHFC

    Captive insurance, section 79, 419 and 412i problems
    WebCPA

    The dangers of being "listed"
    A warning for 419, 412i, Sec.79 and captive insurance
    Accounting Today: October 25,
    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.

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  8. Material Advisors and 419 Plans Litigation - IRS Audit Experts for abusive insurance based plans deemed reportable or listed t

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