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."

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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.

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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.

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Lance Wallach on 419, 412i, and more

Will Your Municipal Bond or Your Life Insurance Company Still Have Value Next Year?

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. 

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Insurance Agents: Help for those who sold 419 and 412i plans.

Our Team Defends Insurance Agents Who Sold 419 and 412i 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".











Insurance Agents: Help for those who sold 419 and 412i plans.

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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Investment News - Lance Wallach - 412i and 419 plan litigatation

 Investment News
Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisors who sold these plans may pay the price.

Financial advisors who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisors and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisors didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.

The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.

So advisors who sold these plans to small businesses are now slowly starting to become the target of litigation from employers who are subject to these fines.

“There is a slew of litigation already against advisors that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”  

Mr. Wallach declined to cite any specific suits. But one advisor who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending. “My legal and accounting bills last year were $864,000,” said the advisor, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”

Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.

In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”

But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.

If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisors that sold these plans to them.

Investment News - Lance Wallach - 412i and 419 plan litigatation

Fatca, Fbar, Offshore Amnesty Large Fines Coming - HG.org

Overseas banks are warning current and former U.S. clients that their names and information soon will be disclosed and that such disclosure will disallow the taxpayer’s entry into the IRSs amnesty program for undeclared offshore accounts.

Taxpayers allowed to enter the IRS amnesty program for confessors own taxes, interest and penalties usually amounting to up to half of the account balance, but they are protected from criminal prosecution.



More than 39,000 taxpayers have entered the amnesty program for undeclared offshore accounts.



Many U.S. taxpayers and advisers have been criminally charged in connection with offshore accounts. 

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VEBA Basic Concepts Revisited | LifeHealthPro

Since my last article on Voluntary Employees' Beneficiary Associations, I've received hundreds of phone calls with basic questions which I will attempt to answer in this article.

First and perhaps most important, a VEBA only becomes a tax-exempt organization under Internal Revenue Code Section 501(c)(9) when it has received a Letter of Determination from the Internal Revenue Service granting it tax exempt status.

If a business or professional wants to participate, it joins an existing multiple employer VEBA which has received this determination letter from the IRS. (It is important to note that while several VEBAs have received IRS determination letters, not all programs purporting to be VEBAs have received them.)

VEBAs allow large amounts of tax-deductible contributions for the funding of life insurance, accident insurance, sickness and other benefits for the members of the VEBA, their employees, dependents and beneficiaries. Contribution amounts can be made flexible and benefits are highly favorable to the business owner.

Under the proper conditions, a small business can sometimes put in hundreds of thousands of tax-deductible dollars per year to fund its VEBA.

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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.

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