Section 79 Scams and Captive Insurance History
If you do not properly file Form 8886, there is no Statute of Limitations. That means the IRS can come back and fine you many years later. Anyone that wants to risk an IRS audit by utilizing a captive insurance or Section 79 scam should, at the very least, engage a competent professional to file 8886 forms. By filing protectively and properly, the Statute of Limitations starts running and you avoid the very large IRS penalties under 6707A. But as I have previously stated, I only know two people who I would trust to undertake the preparation of the forms, especially if the forms are not being filed timely.
income tax rules applicable to split dollar plans.
ReplyDelete* Revenue Ruling 2007-65 is very specific regarding the deductibility of contributions for premiums paid by the Section 419 trust fund for cash value insurance policies. The ruling states that an employer would NOT be entitled to a deduction for premiums paid if the Section 419 trust fund is directly or indirectly a beneficiary of the policy within the parameters of IRC Section 264(a). The IRS held that in most of the targeted arrangements the Section 419 trust fund is the direct or indirect beneficiary of the policy, and as such, any contributions used to pay premiums for cash value insurance are NOT considered to be “qualified direct costs” of the fund and are NOT deductible for income tax purposes.
The IRS will only apply the holding of Revenue Ruling 2007-65 “prospectively” for any taxable year of an employer ending on November 5, 2007 or after. So, IRS has now placed very prohibitive restrictions on the marketing of Section 419(e) “single employer plans” funded with cash value life insurance. This is comparable to when the Service placed prohibitive restrictions on the marketing of Section 419(A)(f)(6) “multiple employer plans” funded with cash value life insurance in 2003.
Cell captives solve many problems for brokers
ReplyDeleteInsurance brokers - already under siege from ever more stringent legislation - now face having to place their business in a volatile market that is still reeling from the costly 2005 U.S. hurricane season.
One way to place programmes (locally and internationally) without too much volatility is to make use of alternative risk transfer structures, like cell captives. Within the cell captive environment, premiums are allocated directly to individual cells and are used to pay claims, buy reinsurance for catastrophic events and make investments. Each cell covers only its own risks - there is no cross subsidization between cells - and economic benefits belong to the individual cell. Thus the broker is able to structure the insurance programme according to the client?s specific needs, risk profile and general appetite for risk.
"From the broker's perspective, an important benefit of the cell captive structure is that it fosters a long-term partnership between the broker, the client and the cell captive insurer. It's simple: cell captives work because the client is rewarded for prudent risk management; and prudent risk management is the cornerstone of a good insurance relationship," says Herman Schoeman, MD of Guardrisk, the world's largest specialist captive insurance group of its kind.
In the U.S. the traditional insurance industry has come under fire regarding practices relating to the payment of commissions and this has not gone unnoticed by insurance buyers around the world. "Earn-as-you-go" has long been the mantra of cell captive insurers - as opposed to the traditional market's "pay-as-you-go" formula - and this applies to traditional broker commissions as a remuneration structure too. Within the cell captive environment, commissions are replaced by a fee levied for services rendered. The broker is recognized - and rewarded- as a business partner; an approach that can only be good for the industry.