IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams
Small Business Retirement Plans Fuel Litigation: Article from Dolan Media Newswires: "Originally published 1/22/2010 Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are..."
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What Is a 419e?
The term "419e plan" refers to an employee benefit plan that provides
welfare benefits to its participants. It is a "single employer" welfare
benefit plan, meaning that the same company pays all of the employee
benefits for. Generally, an independent trustee holds the trust assets,
and a third-party administrator arranges actuarial certification of funding
and benefits, and approves plan administration.
This type of plan allows a company to provide a suite of benefits to its
employees – including the owners of the business – ranging from death
benefits during their working years to medical and long-term care
benefits in retirement. The goal of a 419(e) plan is to allow the company
to fund certain retirement benefits in advance.
The welfare benefits provided by a 419(e) plan are meant to enhance
the financial security of employees and can include:
· Supplemental Disability Benefits
· Severance Benefits
· Post-Retirement Medical Benefits
· Long Term Care Benefits
· Death Benefits
Problems with these plans have arisen however, because the IRS has
identified some of these plans as listed transactions.
Depending on the specific facts and circumstances, a particular plan
could be providing dividends to the owners of a business that can be
included in the owners’ income and not deductible by the business. The
arrangement could also be a plan of non-qualified deferred
compensation. Even some arrangements providing welfare benefits may
have actual tax consequences different than what is claimed.
If a transaction is designated as a listed transaction, affected persons
have disclosure obligations and may be subject to applicable penalties.
This is where form 8886 comes into play, and filing this form properly will
be key to reducing or avoiding penalties that can rise into the hundreds
of thousands of dollars.
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