Showing posts with label 412i-419 Plans. Show all posts
Showing posts with label 412i-419 Plans. Show all posts

FBAR/OVDI LANCE WALLACH: FBAR-What are You Hiding

FBAR/OVDI LANCE WALLACH: FBAR-What are You Hiding: The collapse of Swiss bank secrecy, the IRS settlement with UBS, the criminal investigation of HSBC and the related IRS voluntary disclo...






Friday, March 7, 2014


FBAR/OVDI LANCE WALLACH: IRS FBAR Voluntary Disclosure Initiative, opt out ...

FBAR/OVDI LANCE WALLACH: IRS FBAR Voluntary Disclosure Initiative, opt out ...:  Lance Wallach The 2012 OVDI, which is still open, is patterned after the 2011 OVDI, but increases the maximum Report of Foreign Ban...

Help with Common IRS Problems: As an expert witness Lance Wallach side has never ...

Help with Common IRS Problems: As an expert witness Lance Wallach side has never ...: As an expert witness Lance Wallach side has never lost a case: Sometimes the IRS might disagree with planning you... : Sometimes the IRS mig...



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  1. KENNETH ELLIOTSea Nine VEBA Important

    kennethelliotkaeinsuranceco.blogspot.com/.../sea-nine-veba-important.ht...

    Jan 7, 2014 - As of August 23,2013, the IRS has closed audits of 12 Sea Nine VEBAplan-participating taxpayers who were referred to Sea Nine by Sarva.
  2. 412i-419 Plans: KENNETH ELLIOTSea Nine VEBA Important

    419plans.blogspot.com/.../kenneth-elliot-sea-nine-veba-important.html

    Mar 7, 2014 - KENNETH ELLIOTSea Nine VEBA Important: As of August 23,2013, the IRS has closed audits of 12 Sea Nine VEBA plan-participating ...
  3. IRS to Audit Sea Nine VEBA Participating Employers - Abusive Tax ...

    beat-the-irs.blogspot.com/2012/07/irs-to-audit-sea-nine-veba.html

    Jul 1, 2012 - What is the IRS's position with respect to the Sea Nine VEBA, 419 captive.... sea nine veba kenneth elliot help ramesh sarva help fight IRS sea  ...
    Lance Wallach +1'd this

As an expert witness Lance Wallach side has never lost a case: Sometimes the IRS might disagree with planning you...

As an expert witness Lance Wallach side has never lost a case: Sometimes the IRS might disagree with planning you...: Sometimes the IRS might disagree with planning you did with other advisors and you need to find help to ensure that your rights are protec...


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Lance Wallach - The Nation's Foremost 419 and 412i plans expert

Lance Wallach - The Nation's Foremost 419 and 412i plans expert

Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach

Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach

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Expert Witness & 419 Plans Litigation: 419 Insurance Welfare Benefit Plans Continue To Get Accountants Into Trouble

Insurance Agents: Help for those who sold 419 and 412i plans

IRS Tax Shelters and 419 Plans Litigation: Insurance Agents: Help for those who sold 419 and 412i plans.

419 Plan, 412i Plan, Welfare benefit plan assistance, audits & Abusive tax shelters

419 Plan, 412i Plan, Welfare benefit plan assistance, audits & Abusive tax shelters

Lance Wallach - The Nation's Foremost 419 and 412i plans expert

Lance Wallach - The Nation's Foremost 419 and 412i plans expert

IRS tax relief firm, Lance Wallach, speaking: 412i-419 Plans

IRS tax relief firm, Lance Wallach, speaking: 412i-419 Plans: KENNETH ELLIOT: Sea Nine VEBA Important

Lance Wallach Expert Witness

Lance Wallach Expert Witness

Small business retirement plans fuel litigation

Dolan Media Newswires                       

Small business retirement plans fuel litigation
Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans. The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.
The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.
There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.
A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.
Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums - 80 to 110 percent of the first year's premium, which could exceed $1 million.
Technically, the IRS's problems with the plans were that the "springing cash" structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.
Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or "listed transaction," penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren't told that they had to file Form 8886, which discloses a listed transaction.
According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.
Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.
Another reason plaintiffs are going to court is that there are few alternatives - the penalties are not appealable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. "In street language, they lied," said Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.
In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs' lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.
"Insurance companies were aware this was dancing a tightrope," said William Noll, a tax attorney in Malvern, Pa. "These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn't any disclosure of the scrutiny to unwitting customers."
A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that "nobody can predict the future."
An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.
Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.
The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.
In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.
Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.

But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.

"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."


Lance Wallach can be reached at: LaWallach@aol.com- 516-938-5007- or www.vebaplan.com


Insurance Agents: Help for those who sold 419 and 412i plans.

Insurance Agents: Help for those who sold 419 and 412i plans.

EP Abusive Tax Transactions - Certain Trust Arrangements Seeking to Qualify for Exemption from Section 419


Notice 95-34 discusses tax problems raised by certain trust arrangements seeking to qualify for exemption from IRC section 419. This transaction involves the claiming of deductions under IRC sections 419 and 419A for contributions to multiple employer welfare benefit funds. In general, an employer may deduct contributions to a welfare benefit fund when paid, but only if the contributions qualify as ordinary and necessary business expenses of the employer and only to the extent allowable under IRC sections 419 and 419A.  There are strict limits on the amount of tax-deductible pre-funding permitted for contributions to a welfare benefit fund.
IRC section 419A(f)(6) provides an exemption from IRC sections 419 and 419A for a welfare benefit fund that is part of a 10 or more employer plan. In general, for this exemption to apply, an employer normally cannot contribute more than 10 percent of the total contributions contributed under the plan by all employers, and the plan must not be experience rated with respect to individual employers.
Promoters have offered trust arrangements that are used to provide life insurance, disability, and severance pay benefits. The promoters enroll at least 10 employers in their multiple employer trusts and claim that all employer contributions are tax deductible when paid, relying on the 10-or-more-employer exemption from the limitations under IRC sections 419 and 419A. Often the trusts maintain separate accounting of the assets attributable to each subscribing employer’s contributions.
Notice 95-34 puts taxpayers on notice that deductions for contributions to these arrangements are disallowable for any one of several reasons (e.g., the arrangements may provide deferred compensation, the arrangements may be separate plans for each employer, the arrangements may be experience rated in form or operation, or the contributions may be nondeductible prepaid expenses).
On July 17, 2003, final regulations (T.D. 9079) relating to whether a welfare benefit fund is part of a 10 or more employer plan (as defined in section 419A(f)(6) of the Internal Revenue Code) were published in the Federal Register (68 FR 42254).




In addition, in a case decided by the Third Circuit Court of Appeals, the contributions to the plan were taxable to the owners of the corporate employers as constructive dividends (Neonatology Associates, P.A., Et Al. v. Commissioner, 299 F.3rd 221 - 3rd Cir. 2002).