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 Topic: IRS audits section 79 419 412i CPA fines ( Topic Closed)
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Lance Wallach
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Joined: 18 Jul 2012
Location: United States
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| Posted: 18 Jul 2012 at 15:06 | IP Logged
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IRS audits section 79 412i 419 plans and fines accountants
100,000 as material advisors for more goole 419 or lance
wallach or www.vebaplan.com
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Lance Wallach
Newbie
Joined: 18 Jul 2012
Location: United States
Online Status: Offline
Posts: 4
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| Posted: 18 Jul 2012 at 15:07 | IP Logged
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Lance Wallach, www.vebaplan.com can help you with the
problems of 419 412i and abusive tax shelters.
419, 412i, IRS audits, Lance Wallach, Google him helps,
The following had something to do with this. Woman to act
in vidio on point needed.
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
Dan Carpenter Anthony Fakouri
Steve Burgess
Robin Weingast
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Lance Wallach
Newbie
Joined: 18 Jul 2012
Location: United States
Online Status: Offline
Posts: 4
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| Posted: 18 Jul 2012 at 15:08 | IP Logged
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Accounting Today
‘Don’t Become A Material Advisor’
JULY 1, 2011
BY LANCE WALLACH
Accountants, insurance professionals and others need to
be careful that they don’t become what the IRS calls
material advisors.
If they sell or give advice, or sign tax returns for
abusive, listed or similar plans; they risk a minimum
$100,000 fine. Their client will then probably sue them
after having dealt with the IRS.
In 2010, the IRS raided the offices of Benistar in
Simsbury, Conn., and seized the retirement benefit plan
administration firm’s files and records. In McGehee
Family Clinic, the Tax Court ruled that a clinic and
shareholder’s investment in an employee benefit plan
marketed under the name “Benistar” was a listed
transaction because it was substantially similar to the
transaction described in Notice 95-34 (1995-1 C.B. 309).
This is at least the second case in which the court has
ruled against the Benistar welfare benefit plan, by
denominating it a listed transaction.
The McGehee Family Clinic enrolled in the Benistar Plan
in May 2001 and claimed deductions for contributions to
it in 2002 and 2005. The returns did not include a Form
8886, Reportable Transaction Disclosure Statement, or
similar disclosure. The IRS disallowed the latter
deduction and adjusted the 2004 return of shareholder
Robert Prosser and his wife to include the $50,000
payment to the plan.
The IRS assessed tax deficiencies and the enhanced 30
percent penalty under Section 6662A, totaling almost
$21,000, against the clinic and $21,000 against the
Prossers. The court ruled that the Prossers failed to
prove a reasonable cause or good faith exception.
In rendering its decision, the court cited Curcio v.
Commissioner, in which the court also ruled in favor of
the IRS. As noted in Curcio, the insurance policies,
which were overwhelmingly variable or universal life
policies, required large contributions relative to the
cost of the amount of term insurance that would be
required to provide the death benefits under the
arrangement. The Benistar Plan owned the insurance
contracts. The excessive cost of providing death benefits
was a reason for the court’s finding in Curcio that tax
deductions had been properly disallowed.
As in Curcio, the McGehee court held that the
contributions to Benistar were not deductible under
Section 162(a) because the participants could receive the
value reflected in the underlying insurance policies
purchased by Benistar—despite the payment of benefits by
Benistar seeming to be contingent upon an unanticipated
event (the death of the insured while employed). As long
as plan participants were willing to abide by Benistar’s
distribution policies, there was no reason ever to
forfeit a policy to the plan. In fact, in estimating life
insurance rates, the taxpayers’ expert in Curcio assumed
that there would be no forfeitures, even though he
admitted that an insurance company would generally assume
a reasonable rate of policy lapse.
Companies should carefully evaluate their proposed
investments in plans such as the Benistar Plan. The
claimed deductions will be disallowed, and penalties will
be assessed for lack of disclosure if the investment is
similar to the investments described in Notice 95-34,
that is, if the transaction is a listed transaction and
Form 8886 is either not filed at all or is not properly
filed. The penalties, though perhaps not as severe, are
also imposed for reportable transactions, which are
defined as transactions having the potential for tax
avoidance or evasion.
Insurance agents have been selling such abusive plans
since the 1990's. They started as 419A(F)(6) plans and
abusive 412i plans. The IRS went after them. They then
evolved to single-employer 419(e) plans, which the IRS
also went after. The latest scams may be the so-called
captive insurance plan and the so-called Section 79 plan.
While captive insurance plans are legitimate for large
corporations, they are usually not legitimate for small
business owners as a way to obtain a tax deduction. I
have not yet seen a legitimate Section 79 plan. Recently,
I have sent some of the plan promoters’ materials over to
my IRS contacts who were very interested in receiving
them. Some of my associates are already trying to help
defend some unsuspecting business owners who are being
audited by the IRS with respect to these plans.
Similar, though perhaps not as abusive, plans fail after
the IRS goes after them. Niche was one example. The
company first marketed a 419A(F)(6) plan that the IRS
audited. They then marketed a 419(e) plan that the IRS
audited. Niche, insurance companies, agents, and many
accountants were then sued after their clients lost their
deductions, paid fines, interest, and penalties, and then
paid huge fines for failure to file properly under 6707A.
Niche then went out of business.
Millennium sold 419 plans through insurance companies.
They stupidly filed for a private letter ruling to the
effect that they were not a listed transaction. They got
exactly the opposite: a private letter ruling saying that
they were a listed transaction. Then many participants
were audited. The IRS disallowed the deductions, imposed
penalties and interest, and then assessed large fines for
not filing properly under Section 6707A. The result was
lawsuits against agents, insurance companies and
accountants. Millennium sought bankruptcy protection
after a lot of lawsuits.
I have been an expert witness in a lot of the lawsuits in
these 419 plans, 412i plans, and the like, and my side
has never lost a case. I have received thousands of phone
calls over the years from business owners, accountants,
angry plan promoters, insurance agents, and other various
professionals. In the 1990's, when I started writing for
the AICPA and other publications warning about these
abusive plans, most people laughed at me, especially the
plan promoters.
In 2002, when I spoke at the annual national convention
of the American Society of Pension Actuaries in
Washington, people took notice. The IRS chief actuary Jim
Holland also held a meeting similar to mine on abusive
412i plans. Many IRS agents attended my meeting. I was
also invited to IRS headquarters, at the request of the
acting IRS commissioner, to meet with high-level IRS
officials and Treasury officials to discuss 419 issues in
depth, which I did after the meeting.
The IRS then set up task forces and started going after
419 and 412i plans. I have been profusely warning
accountants to properly file under 6707A to avoid the
large fines, but most do not. Even if they file, if they
make a mistake on the forms, the IRS will fine them. Very
few accountants have had experience filing the forms, and
the IRS instructions are complicated and therefore
difficult to follow. I only know of two people who have
been successful in properly filing the forms, especially
after the fact. If the forms are filled out incorrectly,
they should be amended and corrected Most accountants
call me a few years later when they and their clients get
the large fines, either after improperly filling out the
forms or failing to fill them out at all. Unfortunately,
by then it is too late. If they don’t call me then, then
they call me when their clients sue them.
Lance Wallach is a frequent speaker on retirement plans,
financial and estate planning, and abusive tax shelters,
and writes about 412(i), 419 and captive insurance plans.
He can be reached at (516) 938-5007,
wallachinc@gmail.com, or visit www.vebaplan.com. Don’t
Become a ‘Material Advisor’
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