Before you buy you should know section 79 Plan history

Section 79 Scams and Captive Insurance HistoryWhen trying to understand how a product becomes a target of government scrutiny it helps to know its history. 
In the case of plans that fall under Internal Revenue Code Section 79, that history is complex.

Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for 
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and 
others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the 
unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition 
to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate 
the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in 
accomplishing this.

After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen 
problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC 
6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine.  In 
essence, you must  alert the IRS if you were in a transaction that has the possibility of tax avoidance or 
evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and 
done every year that you are in the plan in any way at all, even if you are no longer making contributions. 
According to IRC 6707A Expert Lance Wallach, "I have received hundreds of phone calls from business 
owners who filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine 
for either improperly filing, or for making mistakes on the form."

"The IRS directions about preparing the form are vague, especially if the form is filed late. They presume a 
timely filing. In addition, many states also require forms to be filed. For example, if you work in New York State 
and manage to properly fill out the Federal form, but do not file the State form, you may still get fined," says 
Wallach, adding that he only knows of two people that know how to properly prepare and file the forms, 
especially forms being filed late. As an expert witness in such cases, Lance Wallach’s side has never lost.

The result of the all of the above was many lawsuits against insurance companies, including Hartford, Pacific 
Life, Indianapolis Life, AIG, and Penn Mutual, to name just a few. Agents, accountants, and attorneys were 
also successfully sued.

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