Insurance Agents: Help for those who sold 419 and 412i plans.
Our team of experienced consulting "tax attorneys", CPAs, and "insurance experts" specializing in 412i" and "419 "IRS
audits" that resulted from plans you sold to your clients, mainly "419 plans", "412i plans", "captive insurance" plans
and "Section 79" plans as well as other similar "employee benefit plans" or "welfare benefit plans" that the IRS is
targeting as "abusive tax shelters".
Our firm has been successful in "defending life insurance agents" and "material advisors" who have participated in
the sale of these "benefit plans".
Showing posts with label 419 plans. Show all posts
Showing posts with label 419 plans. Show all posts
IRS Criminal Investigation Department Audits Section 79, Captive Insurance, 412i and 419 Scams
IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI's primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes.
First the IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.
http://www.hg.org/article.asp?id=35505
EP Abusive Tax Transactions - Certain Trust Arrangements Seeking to Qualify for Exemption from Section 419
Notice 95-34 discusses tax problems raised by certain trust arrangements seeking to qualify for exemption from IRC section 419. This transaction involves the claiming of deductions under IRC sections 419 and 419A for contributions to multiple employer welfare benefit funds. In general, an employer may deduct contributions to a welfare benefit fund when paid, but only if the contributions qualify as ordinary and necessary business expenses of the employer and only to the extent allowable under IRC sections 419 and 419A. There are strict limits on the amount of tax-deductible pre-funding permitted for contributions to a welfare benefit fund.
IRC section 419A(f)(6) provides an exemption from IRC sections 419 and 419A for a welfare benefit fund that is part of a 10 or more employer plan. In general, for this exemption to apply, an employer normally cannot contribute more than 10 percent of the total contributions contributed under the plan by all employers, and the plan must not be experience rated with respect to individual employers.
Promoters have offered trust arrangements that are used to provide life insurance, disability, and severance pay benefits. The promoters enroll at least 10 employers in their multiple employer trusts and claim that all employer contributions are tax deductible when paid, relying on the 10-or-more-employer exemption from the limitations under IRC sections 419 and 419A. Often the trusts maintain separate accounting of the assets attributable to each subscribing employer’s contributions.
Notice 95-34 puts taxpayers on notice that deductions for contributions to these arrangements are disallowable for any one of several reasons (e.g., the arrangements may provide deferred compensation, the arrangements may be separate plans for each employer, the arrangements may be experience rated in form or operation, or the contributions may be nondeductible prepaid expenses).
On July 17, 2003, final regulations (T.D. 9079) relating to whether a welfare benefit fund is part of a 10 or more employer plan (as defined in section 419A(f)(6) of the Internal Revenue Code) were published in the Federal Register (68 FR 42254).
In addition, in a case decided by the Third Circuit Court of Appeals, the contributions to the plan were taxable to the owners of the corporate employers as constructive dividends (Neonatology Associates, P.A., Et Al. v. Commissioner, 299 F.3rd 221 - 3rd Cir. 2002).
IRC section 419A(f)(6) provides an exemption from IRC sections 419 and 419A for a welfare benefit fund that is part of a 10 or more employer plan. In general, for this exemption to apply, an employer normally cannot contribute more than 10 percent of the total contributions contributed under the plan by all employers, and the plan must not be experience rated with respect to individual employers.
Promoters have offered trust arrangements that are used to provide life insurance, disability, and severance pay benefits. The promoters enroll at least 10 employers in their multiple employer trusts and claim that all employer contributions are tax deductible when paid, relying on the 10-or-more-employer exemption from the limitations under IRC sections 419 and 419A. Often the trusts maintain separate accounting of the assets attributable to each subscribing employer’s contributions.
Notice 95-34 puts taxpayers on notice that deductions for contributions to these arrangements are disallowable for any one of several reasons (e.g., the arrangements may provide deferred compensation, the arrangements may be separate plans for each employer, the arrangements may be experience rated in form or operation, or the contributions may be nondeductible prepaid expenses).
On July 17, 2003, final regulations (T.D. 9079) relating to whether a welfare benefit fund is part of a 10 or more employer plan (as defined in section 419A(f)(6) of the Internal Revenue Code) were published in the Federal Register (68 FR 42254).
In addition, in a case decided by the Third Circuit Court of Appeals, the contributions to the plan were taxable to the owners of the corporate employers as constructive dividends (Neonatology Associates, P.A., Et Al. v. Commissioner, 299 F.3rd 221 - 3rd Cir. 2002).
Similarities and Differences Between IRC Section 419A(f)(6) and IRC Section 419(e) Plans CPA’s Guide to Life Insurance
Author/Moderator: Lance Wallach, CLU, CHFC, CIMC
Below is an excerpt from one of Lance Wallach’s new books.
Similarities and Differences Between IRC Section 419A(f)(6) and IRC Section 419(e) Plans
One popular type of listed transaction is the so-called “welfare benefit plan,” which once relied on IRC §419A(f)(6) for its authority to claim tax deductions, but now more commonly relies on IRC §419(e). The IRC §419A(f)(6) plans used to claim that the section completely exempted business owners from all limitations on how much tax could be deducted. In other words, it was claimed, tax deductions were unlimited. These plans featured large amounts of life insurance and accompanying large commissions, and were thus aggressively pushed by insurance agents, financial planners, and sometimes even accountants and attorneys. Not to mention the insurance companies themselves, who put millions of dollars in premiums on the books and, when confronted with questions about the outlandish tax claims made in marketing these plans, claimed to be only selling product, not giving opinions on tax questions.
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