Investor protection with municipal bonds is so spotty that there is potential for much mischief.
Disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Municipal issuers often don't file the most basic reports outlining their operating results or material changes in their financial conditions.
Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 60,000 issuers is common.
To keep reading, click here
Showing posts with label Lance Wallach Expert Witness. Show all posts
Showing posts with label Lance Wallach Expert Witness. Show all posts
Should you File, and then Opt Out?
There's been discussion of "opting out" of the program to take your chances in audit, but it's a topic fraught with danger. Now, however, there is guidance about opting out of the program that makes much of it transparent. Because of this late date it is recommended that you properly file FBARs and the 90-day request for amnesty extension. This is the first important step. If the forms are not done properly, you will have extensive problems and will not have to think about opting out. If your forms are properly done and filed, then your situation should be discussed with someone who is experienced in these matters.
Read the whole thing here
Read the whole thing here
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS
You may want to think about participation in the IRS' offshore tax amnestyprogram (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS? Some clients think they are too small to be prosecuted. They are wrong.
To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That's it.
But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.
Using VEBAs For Employer-Owners | LifeHealthPro
Imagine a program that allows large, flexible, tax-deductible contributions to accumulate and compound on a tax-deferred basis. Distributions are received at any age without penalties, regardless of the amount. Assets are protected from creditors' claims. There are income and estate tax-free survivor benefits. The program is fully insured and, by a favorable Letter of Determination, the Internal Revenue Service has granted a tax exemption to the Section 501(c)(9) trust.
The program also can acquire tax-deductible life insurance, provide funds to pay estate taxes and provide tax-deductible educational benefits for children.
These are some of the benefits of a Voluntary Employees' Beneficiary Association (VEBA). VEBAs are tax-exempt trusts (or nonprofit corporations) that are described in Section 501(c)(9) of the Internal Revenue Code of 1986. They require a letter of determination from the IRS granting tax exempt trust status. If the statutory requirements are met and the IRS issues a favorable Letter Of Determination, then, in general, the qualified cost of contributions by an employer to the VEBA that are ordinary and necessary expenses, are deductible for federal income tax purposes.
Establishing a Buy-Sell Agreement | LifeHealthPro
Working with an attorney, you can help a company establish a buy-sell agreement that sets down in writing what happens to the company's ownership structure in the event a member of the ownership group or a major shareholder dies or becomes disabled.
Without such an agreement in place, a company can be thrown into disarray if one of its owners or key shareholders dies, since the deceased's stake will likely revert to their estate. In that case, the surviving owners' attempts to redeem stock from the estate of the deceased can be a complicated, prolonged, and sometimes contentious process, particularly when it comes to valuing that stock.
The Irrevocable Trust Cash Release Program - HG.org
The Irrevocable Trust Cash Release Program
Through a special program, created by Money Watch Consultants Inc., called The Irrevocable Trust Cash Release Program, funds from the insured’s irrevocable trust can be released and made available to pay for long term care, in a facility or at home. And this care can even be provided by a family member.
The amounts of funds that can be made available are typically a vast multiple of the funds currently in the trust. Despite the leveraging, due to the unique structuring of the program, the funds in excess of the initial deposits, and prior to the death of the insured, are received by the trust, and paid out of the trust, on a tax free basis.
This program has recently attracted much attention because Congress has just extended estate tax exemptions to 5 million dollars for individuals and 10 million dollars for married couples. Thus many people who have set up and funded various irrevocable trusts in order to pay their estate taxes, feel that they are no longer needed.
This program gives them the ability to dramatically leverage these funds to pay for health care that they anticipate may eventually be required, without worrying about liquidating assets or making withdrawals on retirement accounts.
The latest development in irrevocable trust management can solve the insured’s desire to get, tax free cash out of the underused insurance policy when most needed, and prior to dying.
Through a special legal loophole, needed funds from the insured’s irrevocable trust can be released and made available to whoever you want, including yourself. Lance Wallach, who wrote the CPA's guide to trusts and estates, and other continuing education books read by CPA's attorneys and financial planners and associate William Kaufman have spent years studying the problem... Most life insurance trusts are underperforming, often requiring [Bill Kaufman] much greater premiums than anticipated. If they were properly designed, no more premiums would be due. Many policies in trusts are rapidly using up their insurance cash values, dramatically underperforming, and are at risk of failing altogether. There are many other problems with almost all of the trusts examined. If you advised your client on these matters, or serve as trustee for him/her, you may have a contingent liability suit on these matters, should the life insurance fail.
Now cash can be released to be used when really needed. Most attorneys, CPA’S, planners etc. that have heard me speak at thousands of national conventions don’t have a clue about the problems. Most of them even created some of these problems for their clients, who are also not aware. As an expert witness Lance Wallach has never lost a case. This does not necessate a lawsuit, just a simple fix. Make sure if you advisor tries it, he has successfully helped others with the program. If done wrong the IRS will come calling, Google Lance Wallach for articles on point. Despite the leveraging, due to the unique structuring of the program, the funds in excess of the initial deposits, and prior to the death of the insured, are received by the trust, and paid out of the trust, on a tax free basis.
If you have an insurance or similar trust you probably have lots of money in it. You may also have lots of problems that will not be discovered until you die. We have been consulted by many beneficiaries with these problems, usually after being charged thousands of dollars by their law firms to tell them about the problems, but not fix them. The way most of the trusts that we have studied, usually set up by law firms, are structured; the big beneficiaries at death will be the law firms. Worse, insurance in the trusts easily falls apart before death, unless you die young. Get an experienced person to review your trust, either to free up lots of money, or to review for problems before it is too late. [Bill Kaufman] If you don‘t [Bill Kaufman] believe me, than Google Lance Wallach and then Google your advisor and see who is more credible. You have worked hard for your money. Don‘t let poor planning, lawyers greed, insurance agents with big commissions disrupt what you thought was sound planning.
ABOUT THE AUTHOR: Lance Wallach, Bill Kaufman
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. He does expert witness testimony and has never lost a case.
Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC
This program has recently attracted much attention because Congress has just extended estate tax exemptions to 5 million dollars for individuals and 10 million dollars for married couples. Thus many people who have set up and funded various irrevocable trusts in order to pay their estate taxes, feel that they are no longer needed.
This program gives them the ability to dramatically leverage these funds to pay for health care that they anticipate may eventually be required, without worrying about liquidating assets or making withdrawals on retirement accounts.
The latest development in irrevocable trust management can solve the insured’s desire to get, tax free cash out of the underused insurance policy when most needed, and prior to dying.
Through a special legal loophole, needed funds from the insured’s irrevocable trust can be released and made available to whoever you want, including yourself. Lance Wallach, who wrote the CPA's guide to trusts and estates, and other continuing education books read by CPA's attorneys and financial planners and associate William Kaufman have spent years studying the problem... Most life insurance trusts are underperforming, often requiring [Bill Kaufman] much greater premiums than anticipated. If they were properly designed, no more premiums would be due. Many policies in trusts are rapidly using up their insurance cash values, dramatically underperforming, and are at risk of failing altogether. There are many other problems with almost all of the trusts examined. If you advised your client on these matters, or serve as trustee for him/her, you may have a contingent liability suit on these matters, should the life insurance fail.
Now cash can be released to be used when really needed. Most attorneys, CPA’S, planners etc. that have heard me speak at thousands of national conventions don’t have a clue about the problems. Most of them even created some of these problems for their clients, who are also not aware. As an expert witness Lance Wallach has never lost a case. This does not necessate a lawsuit, just a simple fix. Make sure if you advisor tries it, he has successfully helped others with the program. If done wrong the IRS will come calling, Google Lance Wallach for articles on point. Despite the leveraging, due to the unique structuring of the program, the funds in excess of the initial deposits, and prior to the death of the insured, are received by the trust, and paid out of the trust, on a tax free basis.
If you have an insurance or similar trust you probably have lots of money in it. You may also have lots of problems that will not be discovered until you die. We have been consulted by many beneficiaries with these problems, usually after being charged thousands of dollars by their law firms to tell them about the problems, but not fix them. The way most of the trusts that we have studied, usually set up by law firms, are structured; the big beneficiaries at death will be the law firms. Worse, insurance in the trusts easily falls apart before death, unless you die young. Get an experienced person to review your trust, either to free up lots of money, or to review for problems before it is too late. [Bill Kaufman] If you don‘t [Bill Kaufman] believe me, than Google Lance Wallach and then Google your advisor and see who is more credible. You have worked hard for your money. Don‘t let poor planning, lawyers greed, insurance agents with big commissions disrupt what you thought was sound planning.
ABOUT THE AUTHOR: Lance Wallach, Bill Kaufman
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. He does expert witness testimony and has never lost a case.
Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC
Dont Give the IRS Every Last Drop
By Lance Wallach
Have you seen the commercials where certain companies advertise that they can settle an IRS debt for “pennies on the dollar”? Usually the offer is too good to be true. Besides, you never want to have the problem in the first place.
The chances of an individual being audited have approximately doubled since 2000. So you need to be careful with your tax return.
IRS officials say research has shown that tax “noncompliance” typically is highest among people who work for themselves, who deal in large amounts of cash, who don’t have taxes withheld from their pay and whose income isn’t reported separately to the IRS, such as by their employer.
Dont Give the IRS Every Last Drop
Insurance Agents: Help for those who sold 419 and 412i plans.
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".
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".
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
The IRS has Turned your Accountant into their Policeman
Every business owner thinks he pays too much in taxes, and in reality, most actually do. These days your accountant has to "play it safe". This is not reducing your tax bill.
Many times a tax preparer's work on a typical return is subject to '+interpretations+' of the tax code. New legislation may force preparers who hope to lower a client's tax bill to be less aggressive with respect to these interpretations, or else they may risk substantially increased penalties.
Furthermore, if a tax preparer's client insists on an aggressive deduction, the preparer may include a form explaining the circumstances. This could eliminate the potential preparer penalty, but it is a certain red flag for the IRS.
Abusive Tax Shelters again on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season
The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them," said IRS Commissioner John Koskinen. "The vast majority of taxpayers pay their fair share, and we are warning everyone to watch out for people peddling tax shelters that sound too good to be true.”
Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.
In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as "listed transactions.
In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as "listed transactions.
Section 79, captive insurance, 412i, 419, audits, problems and lawsuits
Section 79, captive insurance, 412i, 419, audits, problems and lawsuits
April 24, 2012 By Lance Wallach, CLU, CHFC
Captive insurance, section 79, 419 and 412i problems
WebCPA
The dangers of being "listed"
A warning for 419, 412i, Sec.79 and captive insurance
Accounting Today: October 25,
By: Lance Wallach
Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in
big trouble.
In recent years, the IRS has identified many of these arrangements as abusive devices to
funnel tax deductible dollars to shareholders and classified these arrangements as "listed
transactions."
These plans were sold by insurance agents, financial planners, accountants and attorneys
seeking large life insurance commissions. In general, taxpayers who engage in a "listed
transaction" must report such transaction to the IRS on Form 8886 every year that they
"participate" in the transaction, and you do not necessarily have to make a contribution or
claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties
($200,000 for a business and $100,000 for an individual) for failure to file Form 8886 with
respect to a listed transaction.
But you are also in trouble if you file incorrectly.
I have received numerous phone calls from business owners who filed and still got fined. Not
only do you have to file Form 8886, but it has to be prepared correctly. I only know of two
people in the United States who have filed these forms properly for clients. They tell me that
was after hundreds of hours of research and over fifty phones calls to various IRS
personnel.
The filing instructions for Form 8886 presume a timely filing. Most people file late and follow
the directions for currently preparing the forms. Then the IRS fines the business owner. The
tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS.
Many business owners adopted 412i, 419, captive insurance and Section 79 plans based
upon representations provided by insurance professionals that the plans were legitimate
plans and were not informed that they were engaging in a listed transaction.
Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section
6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from
these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A
penalties.
The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending
out notices proposing the imposition of Section 6707A penalties along with requests for
lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of
these taxpayers stopped taking deductions for contributions to these plans years ago, and
are confused and upset by the IRS's inquiry, especially when the taxpayer had previously
reached a monetary settlement with the IRS regarding its deductions. Logic and common
sense dictate that a penalty should not apply if the taxpayer no longer benefits from the
arrangement.
Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed
transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described
in the published guidance identifying the transaction as a listed transaction or a transaction
that is the same or substantially similar to a listed transaction. Clearly, the primary benefit in
the participation 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.
The dangers of being "listed"
A warning for 419, 412i, Sec.79 and captive insurance
Accounting Today: October 25,
By: Lance Wallach
Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in
big trouble.
In recent years, the IRS has identified many of these arrangements as abusive devices to
funnel tax deductible dollars to shareholders and classified these arrangements as "listed
transactions."
These plans were sold by insurance agents, financial planners, accountants and attorneys
seeking large life insurance commissions. In general, taxpayers who engage in a "listed
transaction" must report such transaction to the IRS on Form 8886 every year that they
"participate" in the transaction, and you do not necessarily have to make a contribution or
claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties
($200,000 for a business and $100,000 for an individual) for failure to file Form 8886 with
respect to a listed transaction.
But you are also in trouble if you file incorrectly.
I have received numerous phone calls from business owners who filed and still got fined. Not
only do you have to file Form 8886, but it has to be prepared correctly. I only know of two
people in the United States who have filed these forms properly for clients. They tell me that
was after hundreds of hours of research and over fifty phones calls to various IRS
personnel.
The filing instructions for Form 8886 presume a timely filing. Most people file late and follow
the directions for currently preparing the forms. Then the IRS fines the business owner. The
tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS.
Many business owners adopted 412i, 419, captive insurance and Section 79 plans based
upon representations provided by insurance professionals that the plans were legitimate
plans and were not informed that they were engaging in a listed transaction.
Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section
6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from
these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A
penalties.
The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending
out notices proposing the imposition of Section 6707A penalties along with requests for
lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of
these taxpayers stopped taking deductions for contributions to these plans years ago, and
are confused and upset by the IRS's inquiry, especially when the taxpayer had previously
reached a monetary settlement with the IRS regarding its deductions. Logic and common
sense dictate that a penalty should not apply if the taxpayer no longer benefits from the
arrangement.
Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed
transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described
in the published guidance identifying the transaction as a listed transaction or a transaction
that is the same or substantially similar to a listed transaction. Clearly, the primary benefit in
the participation 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.
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS
You may want to think about participation in the IRS' offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS? Some clients think they are too small to be prosecuted. They are wrong.
To the average businessperson, only the people with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo who was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That's it.
But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.
How to Avoid IRS Fines for You and Your Clients | LifeHealthPro
Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.
A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."
Captive Insurance Plans For Your Problems
Captive Insurance Plans
Avoid Paying nondeductible fines or penalties
Find out how we can guide you through these times
Avoid Paying nondeductible fines or penalties
Find out how we can guide you through these times
Today's IRS audits are both targeted and coordinated
Today's IRS audits are both targeted and coordinated
Question: Are the IRS audits coordinated?
Question: Are the IRS audits coordinated?
Answer: Yes. The IRS audits are both targeted and coordinated. They are targeted meaning that the IRS obtains a list of the participating employers in a plan promotion and audits the participating employers (and owners) for the purpose of challenging the deductions taken with respect to the plan. The audits are coordinated meaning that there is an IRS Issue Management Team for each promotion that has responsibility for both managing the promoter audit(s) and also developing the coordinated position to be followed by the Examination Agents. Their intention is that all taxpayers under audit will receive the similar treatment in Exam. There are also IRS Offices that specialize in 419 audits. For example, IRS offices in upstate New York and in El Monte California will manage many audits of specific promotions. Williams Coulson has significant experience in working with both of these offices.
Question: What is the general IRS position on these plans?
Answer: Though there can be some differences among plans, the basic IRS position is that the plans are not welfare benefit plans, but really plans of deferred compensation. As such, the contributions remain deductible at the business level but are included in the owner’s 1040 income for every open year and the value of the insurance policy with respect to contributions in closed years is included in the owner’s income either in the first open year or the year of termination or transfer. The IRS will normally apply 20% penalties on the tax applied and 30% with respect to non-reporting cases (see discussion below).
Question: Can the penalties ever be waived?
Answer: Yes. The penalties can often be waived upon a showing of the taxpayer’s due diligence and good faith reasonable cause. For example, if the taxpayer can show reliance on an outside tax advisor who reviewed the plan and the law, the Examining Agent normally has the authority to waive the 20% negligence penalty. Note that there are different standards for waiving penalties among the IRS Offices. It is important to know the standards of each office before requesting a waiver.
Question: What if there is an opinion letter issued on the plan – will that eliminate penalties?
Answer: Generally, the answer is a resounding – No. If the opinion letter was issued to the promoter or the promotion itself and a copy was merely provided to the taxpayer (even if the taxpayer paid for it), the IRS perceives the advice to be bias and not reasonable for reliance.
Question: What if the taxpayer relied upon the advisor who sold the promotion?
Answer: The IRS also discounts any advice provided by parties who are part of the sales team for the promotion. It is possible to negate the bias against professionals involved in the sale if you can demonstrate that the professional was first a tax advisor and gave advice in that role and not as a salesman.
Question: What are the “listed transaction” penalties?
Answer: The IRS has identified certain multiple and single employer welfare benefit plans as listed transactions. Taxpayers who participate in listed transactions have an obligation to notify the IRS of their participation on IRS Form 8886. The Form 8886 must be filed with every tax return where a tax effect of the transaction appears on the return and for the first year of filing must also be filed with the IRS Office of Tax Shelter Analysis (OTSA). There are penalties that apply for the failure to file the Form 8886. The IRS position appears to be that although only the C corporation must file the 8886, if the business is a pass-through entity like an S Corporation, LLC or partnership, then the Form 8886 must be filed at both the entity level and also the individual level. The penalty for non-filing is 75% of the tax reduction for the tax year. Note that it is very clear that a plan does not have to be proven to be defective or abusive for the penalty to apply. Further, the IRS has made it very clear that they will construe the duty to disclose broadly. Thus, if there is even a possibility that a plan is a listed transaction, the taxpayer should consider strongly filing the Form 8886.
Question: Are there other negatives to not filing the Form 8886?
Answer: Yes. In addition to the non-reporting penalty, the negligence penalty discussed above of 20% becomes 30% and is much more difficult to have waived. Further, the non-reporting penalty cannot be appealed to tax court. Therefore, the only recourse is to pay the penalty, file for a refund and fight the case in District Court.
Question: Whose responsibility is it to notify taxpayers of the need to file Form 8886?
Answer: It depends. Many promoters take the initiative to inform their customers that the promotion may be considered to be a listed transaction and that they should consider filing Forms 8886, though some promoters have actually taken the opposite view and have directed customers to not file the Form 8886 to keep them off the IRS radar. These promoters face potential liability if the penalties are assessed. Because the Form 8886 is filed with the tax returns, it may be partly the responsibility of the CPA who prepares the returns to file the Form, though many CPAs may not know that the transaction is a listed transaction or how to prepare the Form. From the IRS perspective, the responsibility is clear – it is the taxpayer who bears the ultimate responsibility and will be penalized if the Form is not filed.
Question: Are some plans better than others?
Answer: Yes. Even though the IRS appears to have thrown a giant net over the entire industry, I have observed that many promoters have worked hard to develop a plan that complies with the tax law. The plans are supported by substantial legal and actuarial authority and make it clear that they are welfare plans and not deferred compensation plans. These plans are often very strong in their marketing materials as to the nature of the plan and also provide for less deductible amounts. On the other hand, some promotions have ignored new IRS Regulations (issued in 2003) and continue to sell and market plans that have been out of compliance for years. They make no attempt to bring their plans into compliance and seek to stay under the radar by directing their customers to not file Forms 8886.
Question: Do taxpayers have causes of action?
Answer: Maybe. We see two potential causes of action. First, in cases where the promoter has either created a defective product, or has turned a blind eye towards law changes, the promoter and potentially the insurance companies may have liability for the creating, marketing, endorsing and selling a defective product. Second, where planners have sold the product to customers improperly, by describing the plan as a safe, IRS approved retirement plan with unlimited deductions, they may have liability for fraudulent sales.
I do not agree with everything in this well written sales pitch. As an expert witness Lance Wallach’s side has never lost a case. I only know of two people that have successfully filed under IRS 8886, after the fact. Many of the hundreds of phone calls that I receive each year involve misfiling of 8886 forms.
If you are, or were in an abusive tax shelter like a 419 or 412i plan to time to act is now. If you are in a captive insurance or section 79 plan you should speak with someone that does not sell them. Many former promoters of abusive 419 plans now sell captive insurance or section 79 plans. IRS audits those plans. Who should you believe as many people still promote these scams?
Google Lance Wallach and the man pushing the plan.
Reportable Transactions .com: 419 Plan, 412i Plan
Reportable Transactions .com: 419 Plan, 412i Plan, Welfare benefit plan assistan...: 419 Plan, 412i Plan, Welfare benefit plan assistance, audits & Abusive tax shelters
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