Internal Revenue Code 6707A and Section 79: Breaking Down the Problem
Premise
by Lance WallachThe IRS is fussy about its forms, and people involved in 419 and 412i plans discovered that the hard way. Now the IRS is starting to target Section 79 plans, and business owners are running into the same 6707A issues that the 412i and 419 plan participants had. Knowing this history could help someone considering a Section 79 plan avoid those very major headaches.
by Lance WallachThe IRS is fussy about its forms, and people involved in 419 and 412i plans discovered that the hard way. Now the IRS is starting to target Section 79 plans, and business owners are running into the same 6707A issues that the 412i and 419 plan participants had. Knowing this history could help someone considering a Section 79 plan avoid those very major headaches.
Discussion
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 and charged penalties and interest.
After the business owner was assessed the fines and lost his tax deduction, the IRS then came back and fined him a huge amount of money for not telling on himself under Internal Revenue Code 6707A. You see, if you participate in a listed or reportable transaction, you must alert the IRS or face a large fine. In essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and done every year that you are in the plan, even if you are no longer making contributions.
I have received hundreds of phone calls from business owners who improperly filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine for either improperly filing, or for making mistakes on the form. I only know of two people in the entire country who have consistently prepared these forms properly.
I have received hundreds of phone calls from business owners who improperly filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine for either improperly filing, or for making mistakes on the form. I only know of two people in the entire country who have consistently prepared these forms properly.
In addition, many states also require forms to be filed. For example, if you work in New York State and manage to properly fill out the Federal form, but don’t file the State form, you may still get fined.
Lately, insurance companies, agents, accountants, and others have been selling captive insurance and Section 79 scams. The motivations are exactly the same. They push large tax deductions for business owners. There are also huge commissions for salespeople.
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.
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, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR, 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 Public 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 the 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.taxadvisorexpert.com.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Lance Wallach helps with 419 problems. 412i 419 abusive tax shelters IRS audits, lawsuits, Lance Wallach will help www.vebaplan.com
ReplyDelete419, 412i, IRS audits, Lance Wallach, Google him helps, The following had something to do with this.
Dennis Cunning Steve Toth Randall Smith Paul Kaplan Herb Green Casey Hermansen
Larry Bell Scott Ridge Judy Carsrud Jeffrey Glasberg Herb McDowel
Greg Roper Joseph Donnelly
Norm Bevan Michael Sonnenberg
r Anthony Fakouri
Steve Burgess
Robin Weingast
IRS audits 419 412i captive insurance and section 79 plans. Lance Wallach will help you.
IRS audits section 79 419 412i plans. www.lancewallach.com for help
, IRS raids, Niche, Robin Weingast, Lance Wallach helps,419 welfare benefit plan problems and how Lance Wallach helps.www.vebaplan.com for more help. Sea Nine VEBA, 419, 412i, IRS audits,Sea Nine VEBA, are all audited by the IRS and people in them probably need help.
Sea Nine VEBA, 419,412i are all IRS audit targets. Lance Wallach can help, www.tazaudit419.com
419, 412i, IRS audits, Lance Wallach, Google him helps, The following had something to do with this. Author to write about these problems.
Dennis Cunning Steve Toth Randall Smith Paul Kaplan Herb Green Casey Hermansen
Larry Bell Scott Ridge Judy Carsrud Jeffrey Glasberg Herb McDowel
Greg Roper Joseph Donnelly
Norm Bevan Michael Sonnenberg
Anthony Fakouri
Steve Burgess
Robin Weingast
" Lance Wallach will help fix the problems that people have that are or were in the plans.
"Professional Benefits Trust" PBI
"Sea Nine Veba"
Bisys
The "Beta Plan"
The "Millennium Plan"
Niche
The "Ridge Plan"
The "Compass Welfare Benefit Plan"
"Section 79 Plans"
"Captive Insurance"
and other similar "412i retirement plans" and "419 welfare benefit plans
Lance Wallach, www.taxaudit419.com will help you with these problems and more like section 79, captive insurance lawsuits and IRS audits. People in the section 79 plans 419 welfare benefit plans captive insurance and 412i pension plans are getting audited by the IRS and then they sue. Google Lance Wallach for help with this. If you need help Lance Wallach as an expert witness has never lost a case. You need help NOW.
Customers of James Cunningham d/b/a Cunningham Financial or CFG Consulting LLC? We want to speak with you!
IRS audits and lawsuits result from 419 412i captive insurance and section 79 plans. As an expert witness Lance Wallach has never lost a case.
MAY
ReplyDelete14
What are 412(i) Plans and what are the problems with these plans
412(i) is a provision of the tax code. A 412(i) plan is a defined pension plan. 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 (insurance and annuities). It provides specific retirement benefits to participants once they reach retirement and must contain assets sufficient to pay those benefits. To create a 412(i) plan, there must be a plan to hold the assets. The employer funds the plan by making cash contributions to the plan, and the Code allows the employer to take a tax deduction in the amount of the contributions, i.e. the entire amount.
The plan uses the contributed funds to purchase some combination of life insurance products (insurance or annuities) for the plan. As the plan participants retire, the plan will usually sell the policies for their present cash value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified retirement benefit to plan participants.
Where did the problems start?
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 and high surrender charges.
These plans were often described as Pendulum Plans, or other similar names. In theory, the plans would work as follows. After the defined pension plan was set up, the plan would purchase a life insurance policy insuring the life of an individual. The plan would have no cash value (and high surrender charges) for 5 or more years. The Corporation would pay the premium on the policy and take a deduction for the entire amount. In year 5, when the policy had little or no cash value, the plan would transfer the policy to the individual, who would take it at a greatly reduced basis. Subsequently, the policy would bloom like a rose, and the individual would ha
Listed Transactions & 419 Plans Litigation
ReplyDelete412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS,412i, reportable or listed transactions by the IRS,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help, Lawsuits, 412i lawsuits,419 lawsuits,Benistar
Wednesday, September 5, 2012
Welfare Benefit 419 Insurance Plans Named Listed Transactions
Lance Wallach
During tax season, many accountants will unknowingly allow clients to deduct listed transactions or potentially abusive tax shelters. Under existing and new regulations, both the taxpayer and the accountant can be held accountable. For example, in February 2007 alone, we received over one thousand phone calls asking about 419, 412(i) and other potentially abusive plans.
The IRS has named most 419 welfare benefit insurance plans as listed transactions. Previously the IRS had named 419A (f)(6) plans as listedtransactions. Taxpayers participating in these listed transactions must disclose such participation to the IRS. In addition, material advisors must also disclose their involvement. This involvement might include allowing the deduction of the plan on the client’s tax return. The penalty for nondisclosure can be $200,000.
Most accountants are not aware of these plans, which are sold by many insurance agents and financial planners. I have received hundreds of phone calls after the IRS has disallowed plans on audit. The IRS is now making accountants policemen with respect to these and other abusive plans that their clients may be participating in.
When I speak at accounting conventions about abusive plans, most accountants are not aware of what I am talking about, and do not think that their clients would be involved in these types of plans. Unfortunately, once they find out that their clients have contributed to these plans much of the damage has been done.
On Oct.17, 2007, the IRS, in Notice 2007-83, identified as listed transactions certain trust arrangements involving cash-value life insurance. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposed severe penalties for welfare benefit plans that discriminate.
Many of these plans have already or will, go out of business. At least two of these plans have stolen the participants’ money.
An accountant who has a client in one of these plans, or who is approached by a client about one of these plans should be cautious, both for the client and for himself.
For more articles on the subject visit, www.vebaplan.com
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, wallachinc@gmail.com, or at www.taxaudit419.com or www.lancewallach.com.
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.
Listed Transactions & 419 Plans Litigation
ReplyDelete412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS,412i, reportable or listed transactions by the IRS,412i Lawsuits,419 lawsuits,412i Help,419 Help, IRS Audits,412i Problems,412i problems, Expert Witness Lance Wallach,412i Help,419 Help, Lawsuits, 412i lawsuits,419 lawsuits,Benistar
Wednesday, August 22, 2012
Have You Dealt With Any Of These People?
Kenny Hartstein Dennis Cunning Steve Toth
Larry Bell Scott Ridge Randall Smith
Greg Roper Tracy Sunderlage Joseph Donnelly
Norm Bevan Michael Sonnenberg Judy Carsrud
Dan Carpenter Michael Carroll Anthony Fakouri
Steve Burgess Tom Crosswhite
Than You Should Know:
The dangers of being "listed"A warning for 419, 412i, Sec.79 and captive insurance
The Truth About Section 79 Permanent Insurance Plans
ReplyDeleteSection 79 plans are a part of the employee benefit section of the Internal Revenue Service code (IRC). This code (IRC code Section 1.79) has been a part of the IRC since it was initially adopted in 1953. The President of the United States at that time was Dwight D. Eisenhower.
Section 79 permanent insurance plans are sold within the United States by large national life insurance companies, all of whom have internal legal and compliance departments whose role is to ensure that the products sold by those companies are legal and comply with the rules and spirit of the law. Section 79 permanent insurance plans are sold legally in all 50 states of these United States of America. For the protection of consumers, each state has an insurance department that reviews and approves all company and agent licensing and products sold within that state. (see National Association of Insurance Commissioners at this link).
So, here’s the truth about Section 79 Permanent Insurance Plans:
• This is a legal insurance product, covered in the IRS Code number 1.79.
• All group life insurance is covered under this IRS Code. Most governmental agencies, non-profit organizations and large Fortune 1,000 companies have section 79 as an employee benefit.
• This is not a new code. The IRC 1.79 has been in the code since 1953.
• All Section 79 products are fully vetted by major national insurance companies, their lawyers and compliance staffs, for sale in all 50 states. These are companies with long and successful histories of selling insurance products in the United States since the mid-1800’s.
• Every state insurance department has fully vetted these Section 79 products and approved them for sales in their states. These products are legal for sale in all 50 states.
• Section 79 plans are not “listed transactions.” Here is a list of all listed transactions according to the IRS – http://www.irs.gov/Businesses/Corporations/Listed-Transactions---LB&I-Tier-I-Issues
Sea Nine Defendant provides customer list to IRS
ReplyDeleteMr. Sarva sent notices to some or all participating employers in the Sea Nine VEBA informing them that “your participation in the VEBA plan is notified to Departement of Justice and Internal Revenue Service.”
Mr. Sarva provides information about how to terminate participation in the Plan and states “I am recommending to all my clients who participated in the VEBA plans, to voluntarily report such amounts on their 2013 tax return and pay with January 15, 2014 estimate the additional tax due. This is to be paid on “accumulated cash value” in your life insurance policy under the VEBA.”
The issues presented by this are:
The IRS position on what a taxpayer should do may be different than simply reporting the value of the policy in the 2013 return.
Taking such action may not prevent an IRS audit, or the imposition of taxes, penalties and/or interest.
Taxpayers who include amounts on their tax returns that relate to participation in the VEBA should consider whether they need to file IRS Form 8886 to avoid penalties under IRC 6707A.
stay away from Section 79 plans, and I thought it was a good time put it back out there. (Read part one here.)
ReplyDeleteFor some odd reason, I’ve had several calls lately from doctors who are being pitched Section 79 plans and are wondering if these plans are any good. The doctors are being told that Section 79 plans are the best wealth-building tool they can use to reduce their 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:
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 percent to 3 percent 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
If you are being told by an IMO or insurance company that you need to start selling Section 79 plans so you can get in the business market and make a bunch of money, resist the sales pitch. If they tell you it’s a can’t-miss program, have them give you what they think is a good illustration for a client and forward it to me. I’ll expose it for the nonsense that it is, and then you will understand first-hand why you don’t want to sell these plans.
#expertwitnessinsurance
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