Showing posts with label 6707A. Show all posts

Expert help with 419a, 419e, 419, 412i, welfare benefit plans, 6707a penalties, form 8886, IRS audits, Section 79, Captive insurance, FBAR, tax masters, jk harris, wpi, us tax shield

Don't face an audit alone! You can avoid 6707A penalties if you are facing an IRS 419 plan or 412i plan audit. Call these experts today for a free phone consultation.

Don't face an audit alone! You can avoid 6707A penalties if you are facing an IRS 419 plan or 412i plan audit. Call these experts today for a free phone consultation.

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▶ Tax Expert Lance Wallach Speaking at Attorney CPA Convention - Video Dailymotion

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IRS Secrets You MUST Know - LanceWallach's Blog - Blogster

IRSform8886.com

Call 516-935-7346

The New Law Guarantees A
Substantial FineOctober 2010by Robert Sherman
8886 form expert preparerThe bill reducing fines for improperly or not filing under "6707A' has
passed. That sigh of relief you heard last week might have come
from people participating in the plans named above, or anything
seeking tax relief that is similar to them – what the IRS calls a listed
transaction People think that Congress bailed them out of trouble
for participation in such transactions, and that the excessive fines
that were being imposed are now a thing of the past. While the
situation is certainly better than it was for some people, and while I
do not want to rain on anyone’s parade, you are still in Disasterville,
and the next to last bus out just left.

Consider this: The new legislation buried in the Jobs Act of 2010
calls for MINIMUM penalties of $5,000 per person per year, and
$10,000 for a business. That is $15,000 per year if you are
incorporated. So, if you have been in a plan since, say, 2003, you
are looking at fines in excess of $100,000 before you even start to
talk about how much of a tax benefit there has been.

Further fines would be seventy-five percent of the tax benefit derived
from participation in the transaction. These are also applied each
year. The point is that you are looking at fines, in all likelihood, to
some degree in the six-figure range.

You can possibly still avoid all this by properly filing "form 8886"
IMMEDIATELY with the IRS. Time is especially of the essence now.
You MUST file before you are assessed the penalty. For months the
Service has been holding off on actually collecting from people that
they assessed because they did not know what Congress was
going to come up with. But now they do know, so they are going to
move aggressively to collection with people they have already
assessed. There is no reason not to now. This is especially true
because the new legislation still does not provide for a right of
appeal or judicial review. The Service is still judge, jury, and
executioner. Its word is absolute as far as determining what is a
listed transaction.So you have to file form "8886" FAST; like NOW. But you also have
to file it RIGHT. The Service treats forms that are incorrectly filed as if
they were never filed. You get this fine for filing incorrectly or for
not filing at all. The Statute of Limitations does not begin unless you
properly file.

That means IRS can come back to get you any time in the future
unless you file properly.

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Business Owners in 419, 412i, Section 79 and Captive Insurance Plans Will Probably Be Fined by the IRS Under Section 6707A | National Tax Society

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Large IRS Fines Continue For 419, 412i, Captive Insurance and Section79 Plans

Guest Post by Lance Wallach

Taxpayers must report certain transactions to the IRS under Section 6707A of the Tax Code, which was enacted in 2004 to help detect, deter, and shut down abusive tax shelter activities. For example, reportable transactions may include being in a 419,412i, or other insurance plan sold by insurance agents for tax deduction purposes. Other abusive transactions could include captive insurance and section 79 plans, which are usually sold by insurance agents for tax deductions. Taxpayers must disclose their participation in these and other transactions by filing a Reportable Transactions Disclosure Statement (Form 8886) with their income tax returns. People that sell these plans are called material advisors and must also file 8918 forms properly. Failure to report the transactions could result in very large penalties. Accountants who sign tax returns, which have these deductions, can also be called material advisors and should also file forms 8918 properly.

The IRS has fined hundreds of taxpayers who did file under 6707A. They said that they did not fill out the forms properly, or did not file correctly. The plan administrator of a 412i advised over 200 of his clients how to file. They were then all fined by the IRS for filling out the forms wrong. The fines averaged about $500,000 per taxpayer.

A report by the Treasury Inspector General for Tax Administration (TIGTA) found that the procedures for documenting and assessing the Section 6707A penalty were not sufficient or formalized, and cases often are not fully developed.

TIGTA evaluated the IRS’s effectiveness in identifying, developing, and applying the Section 6707A penalty. Based on its review of 114 assessed Section 6707A penalties, TIGTA determined that many of these files were incomplete or did not contain sufficient audit evidence. TIGTA also found a need for better coordination between the IRS’s Office of Tax Shelter Analysis and other functions.

The Section 6707A penalty is a stand-alone penalty and does not require an associated income tax examination; therefore, it applies regardless of whether the reportable transaction results in an understatement of tax. TIGTA determined that, in most cases, the Section 6707A penalty was substantially higher than additional tax assessments taxpayers received from the audit of underlying tax returns. I have had phone calls from taxpayers that contributed less than $100,000 to a listed transaction and were fined over $500,000. I have had phone calls from taxpayers that went into 419, or 412i plans but made no contributions and were fined a large amount of money for being in a listed transaction and not properly filing forms under IRC section 6707A. The IRS claims that the fines are non-appealable.

If you are, or were in a 412i, 419, captive insurance or section 79 plan you should immediately file under 6707A protectively. If you have already filed you should find someone who knows what he is doing to review the forms. I only know of two people who know how to properly file. The IRS instructions are vague. If a taxpayer files wrong, or fills out the forms wrong he still gets the fine. I have had hundreds of phone calls from people in that situation.

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, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 20 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic 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, BiskEducation’s CPA’s Guide to Life Insuranceand 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 his side has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com, or visitLanceWallach.com, www.taxaudit419.com or www.taxlibrary.us.

The information provided by Lance 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.

[Ed. Note: Lance Wallach is the expert witness we use in our welfare benefit plan cases. Frequently the owner (taxpayer) of one of these plans received bad advice from a broker, insurance agent and sometimes an accountant. Many people sell these plans but few fully understand them - if they did you wouldn't be reading this article! If you purchased one of these bad plans, you need representation before the IRS and help in recovering any penalties from the people who sold you the plan. With penalties usually over $100,000, do not attempt this on your own.

If you lost money and want to get it back, contact

Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans

Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans (click the link to go to the page)

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By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A - 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 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 also has to be prepared correctly. I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filling. 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 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."

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. 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. Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated. To avoid the fine, the CPA has to properly file Form 8918.

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 more than 50 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.

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

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Small Business Retirement Plans Fuel Litigation

By: Maryland Trial Lawyer - Dolan Media Newswires - January

The penalties for such transactions are extremely high and can pile up quickly.

There are business owners who owe taxes but have been assessed 2 million in penalties. The existing cases involve many types of businesses, including doctors’ offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing. The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisers who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.

A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a “springing cash value,” meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.

Just before it sprung, the owner would purchase the policy from the trust at the low cash value, thus making a tax-free transaction. After the cash value shot up, the owner could take tax-free loans against it. Meanwhile, the insurance agents collected exorbitant commissions on the premiums – 80 to 110 percent of the first year’s premium, which could exceed million.

Technically, the IRS’s problems with the plans were that the “springing cash” structure disqualified them from being 412(i) plans and that the premiums, which dwarfed any payout to a beneficiary, violated incidental death benefit rules.

Under §6707A of the Internal Revenue Code, once the IRS flags something as an abusive tax shelter, or “listed transaction,” penalties are imposed per year for each failure to disclose it. Another allegation is that businesses weren’t told that they had to file Form 8886, which discloses a listed transaction.

According to Lance Wallach of Plainview, N.Y. (516-938-5007), who testifies as an expert in cases involving the plans, the vast majority of accountants either did not file the forms for their clients or did not fill them out correctly.

Because the IRS did not begin to focus audits on these types of plans until some years after they became listed transactions, the penalties have already stacked up by the time of the audits.

Another reason plaintiffs are going to court is that there are few alternatives – the penalties are not appeasable and must be paid before filing an administrative claim for a refund.

The suits allege misrepresentation, fraud and other consumer claims. “In street language, they lied,” said Peter Losavio, a plaintiffs’ attorney in Baton Rouge, La., who is investigating several cases. So far they have had mixed results. Losavio said that the strength of an individual case would depend on the disclosures made and what the sellers knew or should have known about the risks.

In 2004, the IRS issued notices and revenue rulings indicating that the plans were listed transactions. But plaintiffs’ lawyers allege that there were earlier signs that the plans ran afoul of the tax laws, evidenced by the fact that the IRS is auditing plans that existed before 2004.

“Insurance companies were aware this was dancing a tightrope,” said William Noll, a tax attorney in Malvern, Pa. “These plans were being scrutinized by the IRS at the same time they were being promoted, but there wasn’t any disclosure of the scrutiny to unwitting customers.”

A defense attorney, who represents benefits professionals in pending lawsuits, said the main defense is that the plans complied with the regulations at the time and that “nobody can predict the future.”

An employee benefits attorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions – which in one of his cases amounted to 400,000 the first year – as well as the costs of handling the audit and filing amended tax returns.

Defying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but “criminal.” A judge dismissed the case against one of the insurers that sold 412(i) plans.

The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.

In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a “seven-figure” sum in penalties and fees paid to the IRS. A trial is expected in August.

But tax experts say the audits and penalties continue. “There’s a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens,” Wallach said. “Thousands of business owners are being hit with million-dollar-plus fines. … The audits are continuing and escalating. I just got four calls today,” he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.

“From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount.”

As an expert witness Lance Wallach's side has never lost a case. People need to be careful of 419 Welfare Benefit Plans, 412i plans, Section 79 plans and Captive Insurance Plans. Most of these plans are sold by insurance agents. If you are in an abusive, listed or similar transaction plan you need to file under IRS 6707a. The participant files form 8886, and the salesmen or accountant who signs the tax returns files form 8918 if they got paid over $10,000. They are called Material Advisors and face a minimum $100,000 fine. Some plans are offshore which could involve FBAR or OVDI filings. If you have money overseas you probably need to file for IRS tax amnesty. If you want to reduce the tax we suggest that you first file and then opt out. For more information Google Lance Wallach.

The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

6707a | Lance Wallach

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

419 and 412i Plan Help

Expert help with 419a, 419e, 419, 412i, welfare benefit plans, 6707a penalties, form 8886, IRS audits, Section 79, Captive insurance, FBAR, tax masters, jk harris, wpi, us tax shield

Don't face an audit alone! You can avoid 6707A penalties if you are facing an IRS 419 plan or 412i plan audit. Call these experts today for a free phone consultation.

(20) Lance Wallach, expert witness on Pinterest | 195 Pins

▶ Tax Expert Lance Wallach Speaking at Attorney CPA Convention - Video Dailymotion

Tax Expert Lance Wallach Speaking at Attorney CPA Convention - Video Dailymotion

IRS Secrets You MUST Know - LanceWallach's Blog - Blogster

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Business Owners in 419, 412i, Section 79 and Captive Insurance Plans Will Probably Be Fined by the IRS Under Section 6707A | National Tax Society

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Large IRS Fines Continue For 419, 412i, Captive Insurance and Section79 Plans

Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans

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Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Great blog that can help connect you to the experts on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Small Business Retirement Plans Fuel Litigation

About 6707A penalty expert CPA to help with IRS problems

IRC 6707A Causing Accountants and Business Owners Large IRS Fines

6707A help, links and info from experts

IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A

The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

6707a | Lance Wallach

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters

Lance's Blog | The expert on IRS audits of 419e and 412i plans, 6707A, listed and reportable transactions,Section 79, captive insurance and abusive tax shelters