412i, 419e plans litigation and IRS Audit Experts for abusive insurance reportable or listed transactions by the IRS,Section 79, Section 79 Lawsuits,412i
412i, 419e plans litigation and IRS Audit Experts for abusive insurance reportable or listed transactions by the IRS,Section 79, Section 79 Lawsuits,412i
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Deleterticipation 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. He speaks at more than ten conventions annually, writes for over 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. 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. Contact
him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com 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.
Lance Wallach Leading Expert,emloyee benefit plans,tax resolution ...
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Bisk CPEasy * Avoiding Circular 230 Malpractice Traps and Common Abusive Small Businesss Hot spots by the AICPA, author/moderator. Lance Wallach ...
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Mr. Wallach is a member of the AICPA faculty of teaching professionals & a renowned national expert in many court cases. He is the author of many best selling ...
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Mr. Wallach is a member of the AICPA faculty of teaching professionals & a renowned national expert in many court cases. He is the
Lance Wallach - Interview - TaxAudit419.com
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Personal interview with financial and taxation expert Lance Wallach. Expert in 419 welfare benefit plans, 412i retirement plans, Section 79 insurance and captive ...
Lance Wallach (Author of Protecting Clients from Fraud ... - ...
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ReplyDeleteSection 79 Scams and Captive Insurance History
ReplyDeleteWhen trying to understand how a product becomes a target of government scrutiny it helps to know its history.
In the case of plans that fall under Internal Revenue Code Section 79, that history is complex.
Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and
others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the
unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition
to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate
the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in
accomplishing this.
After the business owner was assessed the fines and lost h
412i-419 Plans
ReplyDelete419 & 412i benefit plan,abusive tax shelters, Lance Wallach Expert Witness
Tuesday, March 11, 2014
Section 79 Plans: Section 79 by Lance Wallach, expert witness.
Section 79 Plans: Section 79 by Lance Wallach, expert witness.: For businesses with 10 or fewer employees, the law prohibits full medical underwriting of the policies that are issued ("group" un...
Lance Wallach
Shared publicly - Mar 6, 2014
#Lawsuits
Section 79 Plans
412i, 419e plans litigation and IRS Audit Experts for abusive insurance reportable or listed transactions by the IRS,Section 79, Section 79 Lawsuits,412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.Benistar,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help, Benistar Lawsuits, 412i lawsuits,419 lawsuits,
Thursday, February 27, 2014
Posted by lance wallach at 5:54 AM
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Lance WallachMay 8, 2014 at 7:00 AM
Internal Revenue Code Section 79
Internal Revenue Code Section 79
(a) General rule
There shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of -
you should know section 79 Plan history
ReplyDeletewww.section79plans.org/article-010-Section79-Captive-History.html
Section 79 Plans are insurance plans sold to small business owners that the IRS considers abusive and will audit. Before you buy into this type of plan, captive .
Section 79 Plans
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by Lance Wallach - in 67 Google+ circles
May 1, 2014 - 412i, 419e plans litigation and IRS Audit Experts for abusive insurance reportable or listed transactions by the IRS,Section 79, Section 79 ...
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I’m not sure if there is something in the air, but I’ve been getting a bunch of questions from doctors who have recently been pitched Section 79 Plans. It’s odd because these plans are year-end income tax planning tools. Since I have not sent a newsletter with my opinion on Section 79 Plans in over two years, I figured now was as good a time as any to send one.
ReplyDeleteBefore I start, if you have been pitched one of these plans and want help understanding the math behind why it isn’t any good or if you have one of these plans and wonder how you can get out of them, feel free to e-mail me.
What is the sales pitch with a Section 79 Plan?
1) Partially income tax deductible to business owners.
2) Once funded money can grow tax-free and come out tax-free (creating a nice retirement nest egg ).
3) Low cost when including employees.
Unfortunately, for unsuspecting business owners, what they don’t know is that, not only are Section 79 Plans not the “best” wealth-building tool they can use, they are not even a “good” wealth-building tool.
I rail against Section 79 plans for several reasons including the following:
1) You have to lie to employees to implement them.
2) The life illustrations given by ignorant or crooked insurance agents are not realistic (most use today’s historically low lending rates with 2-3% loan spreads on variable loans on EIUL policies (ones that do not have a fixed lending rate)).
3) You have to be a C-Corporation to use them.
4) The life policies sold in these plans are so bad that the companies don’t want them sold unless they are in Section 79 plans (the policies are designed to have poor performance so the deduction is increased).
5) Another very good reason not to use these plans is because there are better alternatives like Captive Insurance Companies
6) And the best reason not to use a Section 79 plan is because when you run the real numbers the client would be better off not funding the plan, taking his/her money home after taxes, and funding a “good” EIUL policy.
Conclusion
Section 79 Plans do not offer the benefits of those who sell them. If you are being told by an advisor that should use a Section 79 plan to build wealth for retirement, please refer them to this newsletter and tell him/her no thanks.
419 Insurance Welfare Benefit Plans Continue to Get Accountants in Trouble
ReplyDelete________________________________________
February 6, 2012 By Lance Wallach, CLU, CHFC
________________________________________
Popular so-called "419 Insurance Welfare Benefit Plans," sold by most insurance professionals, are getting accountants and their clients into more and more trouble. A CPA who is approached by a client about one of the abusive arrangements and/or situations to be described and discussed in this article must exercise the utmost degree of caution, not only on behalf of the client, but for his/her own good as well.
The National Conference of CPA Practitioners - By Lance Wallach
The penalties noted in this article can also be applied to practitioners who prepare and/or sign returns that fail to properly disclose listed transactions, including those discussed herein.
On Oct. 17, 2007, the IRS issued Notice 2007-83, Notice 2007-84, and Revenue Ruling 2007-65. Notice 2007-83 essentially lists the characteristics of welfare benefit plans that the Service regards as listed transactions. Put simply, to be a listed transaction, a plan cannot rely on the union exception set forth in IRC Section 419A(f)(5),there must be cash value life insurance within the plan and excessive tax deductions for life insurance, in excess of what may be permitted by Sections 419 and 419A, must have been claimed.
In Notice 2007-84, the Service expressed concern with plans that provide all or a substantial portion of benefits to owners and/or key and highly compensated employees. The notice identified numerous specific concerns, among them:
1. The granting of loans to participants;
2. Providing deferred compensation;
3. Plan terminations that result in the distribution of assets rather than being used post-retirement, as originally established; and
4. Permitting the transfer of life insurance policies to participants.
Alternative tax treatment may well be in the offing for such arrangements, as the IRS intends to re-characterize such arrangements as dividends, non-qualified deferred compensation (under IRC Se
Material Advisor & 419 Plans Litigation
ReplyDelete412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS,Benistar,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help, Benistar Lawsuits, 412i lawsuits,419 lawsuits,
Showing posts with label 412i Plans. Show all posts
Friday, November 29, 2013
412i Plans Attacked by IRS, Lawsuits. Lance Wallach, expert witness.
IRS has been attacking abusive 412i plans for years. Business men have been suing the insurance agents who sold the plans. The IRS has attacked 412i, 419 plans for years. As a result promoters are now promoting section 79 and captive insurance plans. They are just starting to be attacked by the IRS.
A 412(i) plan differs from other defined benefit pension plans in that it must be funded exclusively by the purchase of individual life insurance products.
In the late 1990's brokers and promoters such as Kenneth Hartstein, Dennis Cunning, and others began selling 412(i) plans designed with policies created and sold through agents of Pacific Life, Hartford, Indianapolis life, and American General. These plans were sold or administered through companies such as Economic Concepts, Inc., Pension Professionals of America, Pension Strategies, L.L.C. and others.
These plans were very lucrative for the brokers, promoters, agents, and insurance companies. In addition to the costs associated with administering the plans, the policies of insurance had high commissions. If they were cancelled within a few years of purchase the had very little cash value.
These plans were often described as Pendulum Plans, or other similar names. In theory, the plans would work as follows. After the plan was set up, the plan would purchase a life insura
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Our Lawyers, CPAs & the Nation's Leading
Financial experts will help you deal with IRS
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Avoiding Circular 230 Malpractice Trap
(c) Second, in the case of an individual
ReplyDeletewho retires after January 1,
1984, and before January 1, 1987, the
new rules of section 79 (b) and (e) do
not apply if (1) the individual attained
age 55 on or before January 1, 1984, and
(2) the plan was maintained by the
same employer who employed the individual
during 1983, or by a successor
employer.
(d) Third, in the case of an individual
who retires after December 31, 1986, the
new rules of section 79 (b) and (e) do
not apply if (1) the individual attained
Abusive Insurance, Welfare Benefit and Retirement Plans
ReplyDeleteFebruary 6, 2012 By Lance Wallach, CLU, CHFC The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to be abusive. These plans are sold by most insurance agents. The IRS is looking to raise money and is not looking to correct plans or help taxpayers. The fines for being in a listed, abusive, or similar transaction are up to $200,000 per year (section 6707A), unless you report on yourself. The IRS calls accountants, attorneys, and insurance agents “material advisers” and also fines them the same amount, again unless the client’s participation in the transaction is reported. An accountant is a material adviser if he signs the return or gives advice and gets paid.
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via IFTTT Abusive Insurance, Welfare Benefit and Retirement Plan
Group underwriting for businesses of 10 employees or less
ReplyDeleteFor businesses with 10 or fewer employees, the law prohibits full medical underwriting of the policies that are issued (“group” underwriting is required which is much more risky for an insurance company). Amazingly, one of the insurance companies offering this plan seemly doesn’t have the ability to issue non-medically underwriting policies. This is laughable and pathetic all at the same time, and a plan you’ll want to stay far away from.
As I briefly alluded to in last week’s newsletter, one of the reasons I really do not like Section 79 Plans is that they basically force employers and those helping them set up Section 79 plans to lie to the employees when implementing the plan.
Non-Discrimination
Section 79 Plans are employee-benefits plans. As such, employers are not supposed to discriminate in favor of key employees or business owners.
As you know, Section 79 Plans are implemented so business owners can take a business deduction for the purchase of an individually owned life insurance policy that the owner can borrow from tax free in retirement.
It sounds great until you break down the math and understand that a client would be better off paying taxes on his/her money, taking it home, and funding a good cash value life policy (Retirement Life™ ) vs. the low cash accumulation Section 79 Plan policy.
Notwithstanding the math behind Section 79 Plans, let’s talk about the benefits for employees. The employee owner is going to buy a “permanent” policy that will carry cash and can be borrowed from tax free in retirement.
That SAME policy must be offered to ALL employees. If that actually happened in a full-disclosure manner, virtually all the employees would opt for the same permanent policy; and if that happened, the finances of the plan would really go out the window because of the tremendous costs for the employees.
How do you “work around” this issue?
The work around of this issue is a bit clever and deceptive. The employees will be scared into voluntarily opting for $50,000 of term insurance instead of the full-benefit policy (term or permanent).
Why would an employee opt for $50,000 in term instead of a policy with several hundred thousands of dollars or even millions of dollars in death benefits? Because employees who are provided death benefits by an employer in excess of $50,000 are taxed on the additional benefit on an annual basis (and it increases every year).
The scare pitch
You sit the employees down in a room and tell them that the business is going to be implementing a Section 79 Plan as a new employee-benefit plan.
Initially, all the employees are shocked and pleased.
Then the person doing the enrollment meeting tells the employees that they can receive for free $50,000 of term insurance or more death benefit coverage. However, the employees are told they will get an income tax bill for the additional coverage. The employee is typically led to believe that the tax bill will be quite high and that this will be money out of their pocket when they pay the tax on income they did not receive.
Then they are all given the opt-out form for the higher amount where they all opt for $50,000 of term life insurance.
The doctors are being told that Section 79 plans are the “best” wealth-building tool they can use to reduce
ReplyDeletetheir income taxes and create a “tax-free” retirement income.
Unfortunately, for these unsuspecting doctors, what they don’t know is that, not only are Section 79 Plans
not the “best” wealth-building tool they can use, they are not even a “good” wealth-building tool.
I rail against Section 79 plans for several reasons including the following:
1) You have to lie to employees to implement them.
2) The life illustrations given by ignorant or crooked insurance agents are not realistic (most use today’s
historically low lending rates with 2-3% loan spreads on variable loans on EIUL policies (ones that do not have a fixed
lending rate)).
3) You have to be a C-Corporation to use them.
4) The life policies sold in these plans are so bad that the companies don’t want them sold unless they are in
Section 79 plans (the policies are designed to have poor performance so the deduction is increased).