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  • Click HERE to listen to  expert "Lance Wallach" speak about "listed transactions", "419 plan
    issues", "welfare benefit plans" and annuities and how new "IRS regulations" can affect you if you
    participated in one of these types of "benefit plans". Then make sure YOU obtain his services
    before your adversary does.

    Remember, you could still be penalized for failure to file "Form 8886" and those "IRS penalties"
    can be severe. The moratorium on collecting penalties passed on June 1, 2010, so it is
    imperative to seek help now if you are to avoid penalties.

     

      FAST PITCH NETWORKING

      Posted: Dec. 10

      By Lance Wallach

    Here it is. Here is your proof of my predictions. Perhaps you didn’t believe me when I told you the IRS was coming after what it has deemed “abusive transactions,” but here it is, right from the IRS’s own job posting. If you were involved with a 419e, 412i, listed transaction, abusive tax shelter, Section 79, or captive, and you haven’t yet approached an expert for help with your situation, you had better do it now, before the notices start piling up on your desk.

    A portion of the exact announcement from the Department of the Treasury:

    Job Title: INTERNAL REVENUE AGENT (ABUSIVE TRANSACTIONS GROUP)

    Agency: Internal Revenue Service

    Open Period: Monday, October 18, 2010 to Monday, November 01, 2010

    Sub Agency: Internal Revenue Service

    Job Announcement Number: 11PH1-SBB0058-0512-12/13

    Who May Be Considered:

    ·        IRS employees on Career or Career Conditional Appointments in the competitive service

    ·        Treasury Office of Chief Counsel employees on Career or Career Conditional Appointments or with prior competitive status

    ·        IRS employees on Term Appointments with potential conversion to a Career or Career Conditional Appointment in the same line of work

    According to the job description, the agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietorships, small corporations, partnerships and fiduciaries. They will be examining tax returns and will “determine the correct tax liability, and identify situations with potential for understated taxes.”

    These agents will work in the Small Business/Self Employed Business Division (SB/SE) which provides examinations for about 7 million small businesses and upwards of 33 million self-employed and supplemental income taxpayers. This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms, and generally need to rely more on paid tax preparers.” Their examinations can contain “special audit features or anticipated accounting, tax law, or investigative issues,” and look to make sure that, for example, specialty returns are filed properly.

    The fines are severe. Under IRC 6707A, fines are up to $200,000 annually for not properly disclosing participation in a listed transaction. There was a moratorium on those fines until June 2010, pending new legislation to reduce them, but the new law virtually guarantees you will be fined. The fines had been $200,000 per year on the corporate level and $100,000 per year on the personal level. You got the fine even if you made no contributions for the year. All you had to do was to be in the plan and fail to properly disclose your participation.

    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 do. 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, but you also have to file it properly. The Service treats forms that are incorrectly filed as if they were never filed. You get fined 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.

    If you don’t want these new IRS Agents, or any other IRS agents for that matter, to be earning their paychecks by coming after you, make sure you have done all you can to ensure that you have filed properly by reaching out for expert help today.

    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 gives expert witness testimony and his side has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexperts.org or www.taxaudit419.com.

    The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice

     

     

     

     


    Breaking News: Don't Become A Material 
    Advisor

    Accountants, insurance professionals and others need to be careful that they 
    don’t become what the IRS calls 
    material advisors.  If they sell or give advice, 
    or sign tax returns for abusive, listed or similar plans; they risk a minimum 
    $100,000 fine. Their client will then probably sue them after having dealt with 
    the IRS.  

    In 2010, the IRS raided the offices of 
    Benistar in Simsbury, Conn., and seized 
    the retirement benefit plan administration firm’s files and records. In 
    McGehee Family Clinic, the Tax Court ruled that a clinic and shareholder’s 
    investment in an employee benefit plan marketed under the name “Benistar” 
    was a listed transaction because it was substantially similar to the 
    transaction described in Notice 95-34 (1995-1 C.B. 309). This is at least the 
    second case in which the court has ruled against the Benistar welfare benefit 
    plan, by denominating it a 
    listed transaction.

    The McGehee Family Clinic enrolled in the Benistar Plan in May 2001 and 
    claimed deductions for contributions to it in 2002 and 2005. The returns did 
    not include a
     Form 8886, Reportable Transaction Disclosure Statement, or 
    similar disclosure. The IRS disallowed the latter deduction and adjusted the 
    2004 return of shareholder Robert Prosser and his wife to include the 
    $50,000 payment to the plan.  
    Click here to read more.

    California Broker, June 2011


    Employee Retirement Plans

    By Lance Wallach

    412i, 419, Captive Insurance and Section 79 Plans; Buyer Beware

    The IRS has been attacking all 419 welfare benefit plans, many 412i retirement plans, captive insurance plans with life insurance in them, and Section 79 plans.  IRS is aggressively auditing various plans and calling them “listed transactions,” “abusive tax shelters,” or “reportable transactions,” participation in any of which must be disclosed to the Service.  The result has been IRS audits, disallowances, and huge fines for not properly reporting under IRC 6707A.  

    In a recent tax court case, Curico v. Commissioner (TC Memo 2010-115), the Tax Court ruled that an investment in an employee welfare benefit plan marketed under the name “Benistar” was a listed transaction.  It was substantially similar to the transaction described in IRS Notice 95-34.  A subsequent case, McGehee Family Clinic, largely followed Curico, though it was technically decided on other grounds.  The parties stipulated to be bound by Curico regarding whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible.  Curico did not appear to have been decided yet at the time McGehee was argued.  The McGehee opinion (Case No. 10-102) (United States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant issues.  Taxpayers and their representatives should be aware that the Service has disallowed deductions for 
    contributions to these arrangements.  The IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers who sold them.  Some of these plans include defined benefit retirement plans, IRAs, or even 401(k) plans with life insurance. Click here to read full article.

    IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams


    Article Biz                                                          June 2011                                                                                               

    Lance Wallach


    The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i and other plans that they considered abusive, listed, or reportable transactions. Listed designated as listed in published IRS material available to the general public or transactions that are substantially similar to the specific listed transactions. A reportable transaction is defined simply as one that has the potential for tax avoidance or evasion.

    In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-15), the Tax Court ruled that an investment in an employee welfare benefit plan marketed under the name "Benistar" was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible. Curcio did not appear to have been decided yet at the time McGehee was argued. The McGehee opinion (Case No. 10-102) (United States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant issues.

    Taxpayers and their representatives should be aware that the Service has disallowed deductions for contributions to these arrangements. The IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers who sold them. Some of these plans include defined benefit retirement plans, IRAs, or even 401(k) plans with life insurance.

    In order to fully grasp the severity of the situation, one must have an understanding of Notice 95-34, which was issued in response to trust arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits. The promoters of these arrangements claimed that all employer contributions were tax-deductible when paid, by relying on the 10-or-more-employer exemption from the IRC § 419 limits. It was claimed that permissible tax deductions were unlimited in amount.

    In general, contributions to a welfare benefit fund are not fully deductible when paid. Sections 419 and 419A impose strict limits on the amount of tax-deductible prefunding permitted for contributions to a welfare benefit fund. Section 419A(F)(6) provides an exemption from Section 419 and Section 419A for certain "10-or-more employers" welfare benefit funds. In general, for this exemption to apply, the fund must have more than one contributing employer, of which no single employer can contribute more than 10% of the total contributions, and the plan must not be experience-rated with respect to individual employers.

    According to the Notice, these arrangements typically involve an investment in variable life or universal life insurance contracts on the lives of the covered employees. The problem is that the employer contributions are large relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement, and the trust administrator may obtain cash to pay benefits other than death benefits, by such means as cashing in or withdrawing the cash value of the insurance policies. The plans are also often designed so that a particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the economic realities of the arrangements.

    Benistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The benefits of enrollment listed in its advertising packet included:
    Virtually unlimited deductions for the employer;
    Contributions could vary from year to year;
    Benefits could be provided to one or more key executives on a selective basis;
    No need to provide benefits to rank-and-file employees;
    Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;
    Funds inside the plan would accumulate tax-free;
    Beneficiaries could receive death proceeds free of both income tax and estate tax;
    The program could be arranged for tax-free distribution at a later date;
    Funds in the plan were secure from the hands of creditors.

    The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times.

    In rendering its decision the court heavily cited Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The Benistar Plan owned the insurance contracts.

    Following Curcio, as the parties had stipulated, on the question of the amnesty  paid by Mcghee in connection with benistar, the Court held that the contributions to Benistar were not deductible under section 162(a) because participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.

    The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886, Reportable Transaction Disclosure Statement, or similar disclosure.

    The IRS disallowed the latter deduction and adjusted the 2004 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. The IRS also assessed tax deficiencies and the enhanced 30% penalty totaling almost $21,000 against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.

    More you should know:

    In recent years, some section 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan. Effective February 13, 2004, the purchase of excessive life insurance in any plan makes the plan a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance.
    A 412(i) plan in and of itself is not a listed transaction; however, the IRS has a task force auditing 412i plans.
    An employer has not engaged in a listed transaction simply because it is in a 412(i) plan.
    Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan is a listed transaction. Some 412(i) plans have been audited and sanctioned for issues not related to listed transactions.

    Companies should carefully evaluate proposed investments in plans such as the Benistar Plan. The claimed deductions will not be available, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34. In addition, under IRC 6707A, IRS fines participants a large amount of money for not properly disclosing their participation in listed or reportable or similar transactions; an issue that was not before the Tax Court in either Curcio or McGehee. The disclosure needs to be made for every year the participant is in a plan. The forms need to be properly filed even for years that no contributions are made. I have received numerous calls from participants who did disclose and still got fined because the forms were not prepared properly. A plan administrator told me that he assisted hundreds of his participants file forms, and they still all received very large IRS fines for not properly filling in the forms.

    IRS has been attacking all 419 welfare benefit plans, many 412i retirement plans, captive insurance plans with life insurance in them, and Section 79 plans.

     

    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 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, 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.



    Section 79, Captive Insurance, 419, 412i Plans, Don’t go to Arbitration Sue


                                                               Lance Wallach 

    Thomas, Francis, Edward, and Dolores Ehlen1("the Ehlens") are employees of Ehlen Floor Covering, Inc. ("Ehlen Floor"). In 2002, Ehlen Floor created a 412(I) employee benefit pension plan, the Ehlen Floor Coverings Retirement Plan ("the Plan"), with the help of advisors and administrators. IPS, a corporation specializing in pension plan design and administration for small businesses, took over as the Plan administrator at the start of 2003. As part of the commencement of IPS's services, Edward Ehlen, in his capacity as president of Ehlen Floor, signed an Arbitration Addendum ("AA") attached to an Administrative Services Agreement ("the Agreement") between IPS and Ehlen Floor. The AA called for arbitration of "any claim arising out of the rendition or lack of rendition of services under [the] [A]greement." The Agreement provided a list of available services that IPS could provide, such as performing annual reviews of the Plan, making amendments, and preparing annual report forms. The Agreement also stated that Ehlen Floor would indicate in Section VI of the Agreement which of the available services it desired for IPS to actually perform. There is no Section VI in the Agreement, nor is there any testimony or evidence that plaintiffs ever viewed a Section VI of the Agreement.

    Shortly after IPS stepped in as administrator of the Plan, it became aware that the Plan was not in compliance with several Internal Revenue Service ("IRS") rules and regulations. IPS contends that it drafted an amendment to correct these flaws, but the amendment was never officially adopted. In 2004, the IRS promulgated new rules explaining that it would consider 412(i) plans with beneficiary payout limitations to be listed transactions2, possibly subject to serious penalties. The rule required any plans that could be considered listed transactions to file Form 8886 to avoid potential penalties. IPS drafted another amendment to the Plan after determining that the Plan would likely be classified as a listed transaction under the new rules. Ehlen Floor was not informed about the pre-rule tax problems, the existence of the new rule, the additional filing requirements that the new rule imposed, or the drafting of the new amendment. The IRS instigated an audit on March 6, 2006, found the Plan to be non-compliant, and ultimately assessed significant penalties against Ehlen Floor.

    In August 2007, plaintiffs filed a complaint in state court against a number of parties involved with the creation and initial administration of the Plan, asserting claims of negligence, fraudulent and negligent misrepresentation, negligent supervision, breaches of fiduciary duties, and unfair and deceptive trade practices. The case was removed to federal court on the basis of preemption under ERISA. In May 2009, as requested by the court, plaintiffs recast their complaints as federal matters in their Second Amended Complaint, but plaintiffs contested the removal and argued against federal jurisdiction. IPS was added as a defendant in the Second Amended Complaint. IPS then moved to compel arbitration of the dispute, claiming that the terms of the AA govern the matter. The district court denied the motion. IPS appeals; plaintiffs cross-appeal to challenge the existence of federal jurisdiction.

    II. STANDARD

     Innovative Pension Strategies, Inc. ("IPS") appeals the district court's denial of its motion to compel arbitration and stay plaintiffs' claims against it. Plaintiffs cross-appeal, disputing the preemption of their claims under the Employment Retirement Income Security Act ("ERISA") and alleging a lack of federal jurisdiction. We find that jurisdiction is proper and affirm the district court's denial of IPS's motion to compel arbitration.


    We therefore affirm the district court's denial of IPS's motion to compel arbitration and to stay plaintiffs' claims against it.



    Lance Wallach can be reached at: WallachInc@gmail.com

    For more information, please visit www.taxadvisorexperts.org 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 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, 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.taxadvisorexperts.com.

     

    Lance Wallach
    Ph.: (516)938-5007
    Fax: (516)938-6330
    www.vebaplan.com

    National Society of Accountants Speaker of The Year



    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.

     

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