April 2011 Edition
- Virtually unlimited deductions for the employer;
- Contributions could vary from year to year;
- Benefits could be provided to one or more key executives on a selective basis;
- No need to provide benefits to rank-and-file employees;
- Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;
- Funds inside the plan would accumulate tax-free;
- Beneficiaries could receive death proceeds free of both income tax and estate tax;
- The program could be arranged for tax-free distribution at a later date;
- Funds in the plan were secure from the hands of creditors.
- In recent years, some § 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan. Effective February 13, 2004, the purchase of excessive life insurance in any plan is considered a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance.
- A 412(i) plan in and of itself is not a listed transaction; however, the IRS has a task force auditing 412(i) plans.
- An employer has not engaged in a listed transaction simply because it is a 412(i) plan.
- Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan engaged in a listed transaction. Some 412(i) plans have been audited and sanctioned for issues not related to listed transactions.
Lance Wallach, National Society of Accountants Speaker of the Year and member of the American Institute of CPAs faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He speaks at more than ten conventions annually and writes for over fifty publications. 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. Mr. Wallach may be reached at 516/938.5007, firstname.lastname@example.org, or at www.taxaudit419.com or www.lancewallach.com.