Material Advisors and 419 Plans Litigation -
IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS
internal revenue code section 79 lawsuits and audits help with lance wallach who has never lost a case We have knowledge of many different welfare benefit plans and experience in representing taxpayers who participate in those plans before the IRS. A sampling of the plans that we know well include:Millennium PlanInsured Security PlanCorporate Benefit Services PlanSea Nine Associates VEBANiche National Benefit PlansProfessional Benefit Trust (PBT)Koresko STEP PlanBisys PlanXelan PlanSterling Plan Question. What is the IRS position on these plans?Answer. The IRS position appears to be that all multiple employer welfare benefit plans funded with permanent life insurance are abusive tax scams. Their history is to open promoter audits on every such plan and eventually to obtain the client lists from the promoters and then audit their clients. The IRS position on single employer welfare benefit plans that are spin-offs of the multiple employer plans appears to be the same. Similarly, the IRS position on single employer welfare benefit plans invested in permanent life insurance where the employer deducts more than the term cost of insurance is that those plans are also abusive tax scams. Question. Has the IRS approved any multiple or single employer welfare benefit plan invested in permanent life insurance?Answer. Though an IRS private letter ruling is not immediately public, it is my understanding that the IRS has never “approved” of any multiple or single employer welfare benefit plan where permanent life insurance was used as a funding vehicle and the participating employer took a deduction for anything other than the current term insurance cost. Question. Are the IRS audits coordinated?Answer. Yes. The IRS audits are both targeted and coordinated. They are targeted meaning that the IRS obtains a list of the participating employers in a plan promotion and audits the participating employers (and owners) for the purpose of challenging the deductions taken with respect to the plan. The audits are coordinated meaning that there is an IRS Issue Management Team for each promotion that has responsibility for both managing the promoter audit(s) and also developing the coordinated position to be followed by the Examination Agents. Their intention is that all taxpayers under audit will receive the similar treatment in Exam. There are also IRS Offices that specialize in 419 audits. For example, IRS offices in upstate New York and in El Monte California will manage many audits of specific promotions
The Truth About Section 79 Permanent Insurance PlansSection 79 plans are a part of the employee benefit section of the Internal Revenue Service code (IRC). This code (IRC code Section 1.79) has been a part of the IRC since it was initially adopted in 1953. The President of the United States at that time was Dwight D. Eisenhower.Section 79 permanent insurance plans are sold within the United States by large national life insurance companies, all of whom have internal legal and compliance departments whose role is to ensure that the products sold by those companies are legal and comply with the rules and spirit of the law. Section 79 permanent insurance plans are sold legally in all 50 states of these United States of America. For the protection of consumers, each state has an insurance department that reviews and approves all company and agent licensing and products sold within that state. (see National Association of Insurance Commissioners at this link). So, here’s the truth about Section 79 Permanent Insurance Plans:• This is a legal insurance product, covered in the IRS Code number 1.79.• All group life insurance is covered under this IRS Code. Most governmental agencies, non-profit organizations and large Fortune 1,000 companies have section 79 as an employee benefit.• This is not a new code. The IRC 1.79 has been in the code since 1953.• All Section 79 products are fully vetted by major national insurance companies, their lawyers and compliance staffs, for sale in all 50 states. These are companies with long and successful histories of selling insurance products in the United States since the mid-1800’s.• Every state insurance department has fully vetted these Section 79 products and approved them for sales in their states. These products are legal for sale in all 50 states.• Section 79 plans are not “listed transactions.” Here is a list of all listed transactions according to the IRS – http://www.irs.gov/Businesses/Corporations/Listed-Transactions---LB&I-Tier-I-IssuesFor REAL information on Section 79 please contact Business Planning Group at BusinessPLanningGroup.com or call us directly at: (888) 545-2205 .
Lance wallach Expert Witness, Consulting, and Advisory Services for §412(i) and §412(e)(3) Defined Benefit Pension Plan Matters address technical and complex issues involving:§412(i) and §412(e)(3) Defined Benefit Pension PlansAnnuity Contracts and Life Insurance Policies Held by the PlanTax Issues: IRS and State Taxing Authority Audits; Tax Return and Tax Form Filings; Reportable Transactions; Listed Transactions; §6707A Penalties; Excise TaxStatute of Limitations: IRS Audit, State Taxing Authority Audit, and Tax Collection IssuesRegulations and Compliance: Internal Revenue Code, State Revenue Code, ERISASuitability, Non-Discrimination Rules, Fiduciary DutiesPlan AdministrationPlan Contributions, Distributions, and TerminationLiability AnalysisDamage Analysis and Calculations
sue hartford or other ins cos and winecond, this lawsuit continues the unrelenting efforts by the ERISA class action plaintiffs’ bar to try to transform insurance companies – mere sellers of retirement products and services – into ERISA fiduciaries. We first observed these efforts in earnest in the revenue-sharing class actions we have defended, and this case appears to continue the trend in which plaintiffs attempt to recast ministerial tasks or sales efforts as fiduciary conduct. The rulings in this case could contribute to the developing body of law regarding what activities can cause entities to qualify as ERISA fiduciaries.Third, this lawsuit could trigger other non-412(e)(3) lawsuits claiming that other life insurance or annuity-based retirement products and services are “too expensive” or “unsuitable” for retirement plans. We have already observed these same sort of efforts in the ERISA stock drop cases we have defended, in which plaintiffs contend that company stock was unsuitable, and more recently, in some of the plan sponsor revenue-sharing cases, in which plaintiffs contend that certain mutual fund offerings used as investment options are too expensive. This lawsuit could cause the ERISA class action plaintiffs’ bar to look for other types of products for which it could pursue similar claims.
MagazinesResource CenterFROM THE OCTOBER 01, 2010 ISSUE OF AGENT’S SALES JOURNAL • SUBSCRIBE!How to Avoid IRS Fines for You and Your ClientsBY LANCE WALLACHOCTOBER 26, 2010 • REPRINTSShare on linkedin Share on twitter Share on facebook Share on email More Sharing Services28Beware: 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 testifie
Twitternd subject to a maximum $200,000 fine.If you are an insurance professional who sold or advised on one of these plans, the same holds true for you.Section 79 scamsThe attack on 412(i) and 419 plans has been going on for some time now, but the IRS will likely begin cracking down on Section 79 plans more heavily in the near future. So what is a Section 79 plan? It is a tax plan where small-business owners are told that they're allowed to take a tax deduction through their businesses in order to purchase life insurance. That sounds pretty good, doesn't it? When you break down the math and the sales pitch, however, it just doesn't make sense.Agents try to sell Section 79 plans for two simple reasons:Many small business clients will buy any plan that is "deductible" because they hate paying income taxes.Insurance advisors want to sell life insurance.This brings up an interesting issue: If the plan is marginal from a wealth-building standpoint, then why are agents selling it? Again, there are two reasons:Most advisors have not broken down the math so they can come to a correct conclusion, which is that the plans are not worth implementing from a pure financial standpoint.Some advisors know the plan is marginal from a financial standpoint and don't care because they know they can still sell it to business owners who are looking for deductions. The IRS considers them abusive, and will audit them.How to avoid the finesIn order to avoid substantial IRS fines, business owners and material advisors involved in the sale of any of the above type plans must properly file under Section 6707A. Yet filing often isn't enough; many times, the IRS assesses fines on clients whose accountants did file the form yet made a mistake - an error that usually results in the client being fined more quickly than if the form were not filed at all.Everyone in a Section 79 should file protectively under Section 6707A - and anyone who has not filed protectively in a 419 or 412(i) had better get some good advice from someone who knows what is going on, and has extensive experience filing protectively. The IRS still has task forces auditing these plans, and will soon move on to Section 79 scams, including many of the illegal captives pushed by the insurance companies and agents (though not all captives are illegal).As an expert witness in many of cases involving the 412(i) and 419, I can attest that they often do not go well for the agents, accountants, plan promoters, insurance companies, and other involved parties.Here is one example: Pursuant to a settlement with the IRS, a 412(i) plan was converted into a traditional defined benefit plan. All of the contributions to the 412(i) plan would have been allowable if they had initially adopted a traditional defined benefit plan. Based on negotiations with the IRS agent, the audit of the plan resulted in no income and minimal excise taxes due.Toward the end of the audit, the business owner received a notice from the IRS. The IRS had assessed a $400,000 penalty for the client under Section 6707A, because the client allegedly participated in a listed transaction and failed to file Form 8886 in a timely manner.The IRS may call you a material advisor for selling one of these plans and fine you $200,000.00. The IRS may fine your clients over a million dollars for being in a retirement plan, 419 plan, etc. Anything that the Service deems, at its sole discretion, a "listed transaction" is fair game. As you read this article, hundreds of unfortunate people are having their lives ruined by these fines. You may need to take action immediately.Lance Wallach speaks and writes about benefit plans, tax reductions strategies, and financial plans. He can be reached at 516-938-5007 or email@example.com.
What are 412(i) Plans and what are the problems with these plans412(i) is a provision of the tax code. A 412(i) plan is a defined pension plan. A 412(i) plan differs from other defined benefit pension plans in that it must be funded exclusively by the purchase of individual life insurance products (insurance and annuities). It provides specific retirement benefits to participants once they reach retirement and must contain assets sufficient to pay those benefits. To create a 412(i) plan, there must be a plan to hold the assets. The employer funds the plan by making cash contributions to the plan, and the Code allows the employer to take a tax deduction in the amount of the contributions, i.e. the entire amount.The plan uses the contributed funds to purchase some combination of life insurance products (insurance or annuities) for the plan. As the plan participants retire, the plan will usually sell the policies for their present cash value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified retirement benefit to plan participants.Where did the problems start?In the late 1990's brokers and promoters such as Kenneth Hartstein, Dennis Cunning, and others began selling 412(i) plans designed with policies created and sold through agents of Pacific Life, Hartford, Indianapolis life, and American General. These plans were sold or administered through companies such as Economic Concepts, Inc., Pension Professionals of America, Pension Strategies, L.L.C. and others.These plans were very lucrative for the brokers, promoters, agents, and insurance companies. In addition to the costs associated with administering the plans, the policies of insurance had high commissions and high surrender charges.These plans were often described as Pendulum Plans, or other similar names. In theory, the plans would work as follows. After the defined pension plan was set up, the plan would purchase a life insurance policy insuring the life of an individual. The plan would have no cash value (and high surrender charges) for 5 or more years. The Corporation would pay the premium on the policy and take a deduction for the entire amount. In year 5, when the policy had little or no cash value, the plan would transfer the policy to the individual, who would take it at a greatly reduced basis. Subsequently, the policy would bloom like a rose, and the individual would have a policy with significant cash value which he or she could withdraw tax free.Who signed off on the plan?Attorney Richard Smith at the law firm of Bryan Cave issued tax opinion letters opinion which stated that many of the plans complied with the tax code.So what is the problem?In the early 2000s, IRS officials began questioning Richard Smith and others and giving speeches at benefits conferences wherein they took the position that these plans were in violation of both the letter and spirit of the Internal Revenue Code.In February 2004, the IRS issued guidance on 412(i) and began the process of making plans "listed transactions." Taxpayers involved in listed transaction are required to report them to the IRS. These transactions are to be reported using a form 8886. The failure to file a form 8886 subjects individual to penalties of $100,000 per year, and corporations $200,000 per year. These penalties are often referred to as section 6707 penalties. Advisors of these plans are required to maintain records regarding these plans and turn them over to the IRS, upon demand.In October of 2005, the IRS invited those who sponsored 412(i) plans that were treated as listed transactions to enter a settlement program in which the taxpayer would recind the plan and pay the income taxes it would have paid had it not engaged in the plan, plus interest and reduced penalties.In late 2005, the IRS began obtaining information from advisors and actively auditing plans and more recently, levying section 6707 penalties.
our 419 plan fraud protection attorneys provide advice, counseling, and litigation representation for consumers who were harmed by defective 419 welfare benefit plans and the fraud and misrepresentation of plan promoters and insurance agents. With offices in Washington D.C., Maryland, Virginia, and Florida, the firm represents consumers located throughout the U.S.What is a 419(e) welfare benefit plan?A 419(e) plan is a type of employee welfare benefit fund, sponsored by an employer, used for the purpose of providing financial stability for employees in retirement. These plans offer many different benefits to employees, including life, health, disability, long-term care, and post-retirement medical benefits. In a 419(e) plan, there is no benefit pooling among different companies. Instead, the same company pays for all the plan benefits based on a target contribution or target benefit structure. Plan assets are generally held by an independent trustee, and are exempt from seizure by creditors of the company.How insurance companies scam consumersDespite the creation of regulations listing potentially abusive tax shelters (listed transactions) by the IRS, promoters continue to market plans to mislead consumers into believing the plan premiums are tax-deductible. While this benefits the promoters and agents in their sales and commissions, it has serious financial consequences for consumers, including tax penalties and the loss of benefits because of defunct plans. Typical fraudulent claims of promoters include the following:Misrepresenting premiums as tax deductibleFraudulently claiming plans are exempt from tax deduction limitsFailing to analyze whether insurance policies promoted are funds as defined by the IRCIncorrectly claiming exemptions from compliance with ERISA or sections 409, 414, 419, 505, and 79 of the IRCImproper tax deductionsFailure to cite the section of the IRC under which contributions to their plan are tax-deductibleFailed to comply with non-discrimination lawsTaking larger deductions than required to pay term insurance costs for the current tax yearSkilled 419 plan lawyers helping consumersWhen a 419 insurance plan is defunct, consumers who have paid high premiums for years are left without the promised benefits, including much needed life, health, disability, long-term care, and post-retirement medical benefits. In addition, fraud or misrepresentation of an insurance company and its plan promoter can result in penalties by the IRS and other serious tax consequences.Each 419 plan fraud protection