IRS audits and Lawsuits
April 24, 2012 By Lance Wallach, CLU, CHFC
419 and 412i plans being audits, insurance agents sued.
PRODUCERSWEB.com
For Smart Advisors
Get Sued
By Lance Wallach Wednesday, April 8,
The IRS is cracking down on what it considers to be abusive tax shelters. Many
of them are being marketed to small business owners by insurance professionals,
financial planners and even accountants and attorneys. I speak at numerous
conventions, for both business owners and accountants. And after I speak, I am
always approached by many people who have questions about tax reduction plans
that they have heard about. Below are the most common.
419 tax reduction insurance plans
These come in various versions, and most of them have or will get the
participant audited and the salesman sued. They purportedly allow the business
owner to make a large tax-deductible contribution, and some or all of the
contribution pays for a life insurance product. The IRS has been disallowing
most versions of these plans for years, yet they continue to be sold. After
everyone gets into trouble and the insurance agents get sued, the promoters of
the abusive versions sometimes change the name of their company and call the
plan something else. The insurance companies whose policies are sold are
legitimate companies. What usually is not legitimate is the way that most of
the plans are operated. There can also be a $200,000 IRS fine facing the
insurance agent who sold the plan if Form 8918 has not been properly filed.
I've reviewed hundreds of these forms for agents and have yet to see one that
was filled out correctly.
When the IRS audits a participant in one of these plans, the tax deductions are
lost. There is also the interest and large penalties to consider. The business
owner can also be facing a $200,000-a-year fine if he did not properly file
Form 8886. Most of these forms have been filled out improperly. In my talks
with the IRS, I was told that the IRS considers not filling out Form 8886
properly almost the same as not filing at all.
412(i) retirement plans
The IRS has been auditing participants in these types of retirement plans.
While there is generally nothing wrong with many of the newer plans, the IRS
considered most of the older abusive plans. Forms 8918 and 8886 are also
required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I
have not lost one of them. If you sold one or more of these plans, get someone
who really knows what they are doing to help you immediately. Many advisors
will take your money and claim to be able to help you. Make sure they have
experience helping agents that have sold these types of plans. Don't let them
learn on the job, with your career and money at stake.
Do not wait for IRS to come and get you, or for your client to sue you. Time is
of the essence. Most insurance professionals need help to correct their improperly
completed Form 8918 or to fill it out properly in the first place. If you have
not previously filled out the form it is late, and therefore you should
immediately seek assistance. There are plenty of legitimate tax reduction
insurance plans out there. Just make sure that you know the history of the
people with whom you conduct business.
Remember, if something looks too good to be true, it usually is. Be careful.
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.
For Smart Advisors
Get Sued
By Lance Wallach Wednesday, April 8,
The IRS is cracking down on what it considers to be abusive tax shelters. Many
of them are being marketed to small business owners by insurance professionals,
financial planners and even accountants and attorneys. I speak at numerous
conventions, for both business owners and accountants. And after I speak, I am
always approached by many people who have questions about tax reduction plans
that they have heard about. Below are the most common.
419 tax reduction insurance plans
These come in various versions, and most of them have or will get the
participant audited and the salesman sued. They purportedly allow the business
owner to make a large tax-deductible contribution, and some or all of the
contribution pays for a life insurance product. The IRS has been disallowing
most versions of these plans for years, yet they continue to be sold. After
everyone gets into trouble and the insurance agents get sued, the promoters of
the abusive versions sometimes change the name of their company and call the
plan something else. The insurance companies whose policies are sold are
legitimate companies. What usually is not legitimate is the way that most of
the plans are operated. There can also be a $200,000 IRS fine facing the
insurance agent who sold the plan if Form 8918 has not been properly filed.
I've reviewed hundreds of these forms for agents and have yet to see one that
was filled out correctly.
When the IRS audits a participant in one of these plans, the tax deductions are
lost. There is also the interest and large penalties to consider. The business
owner can also be facing a $200,000-a-year fine if he did not properly file
Form 8886. Most of these forms have been filled out improperly. In my talks
with the IRS, I was told that the IRS considers not filling out Form 8886
properly almost the same as not filing at all.
412(i) retirement plans
The IRS has been auditing participants in these types of retirement plans.
While there is generally nothing wrong with many of the newer plans, the IRS
considered most of the older abusive plans. Forms 8918 and 8886 are also
required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I
have not lost one of them. If you sold one or more of these plans, get someone
who really knows what they are doing to help you immediately. Many advisors
will take your money and claim to be able to help you. Make sure they have
experience helping agents that have sold these types of plans. Don't let them
learn on the job, with your career and money at stake.
Do not wait for IRS to come and get you, or for your client to sue you. Time is
of the essence. Most insurance professionals need help to correct their improperly
completed Form 8918 or to fill it out properly in the first place. If you have
not previously filled out the form it is late, and therefore you should
immediately seek assistance. There are plenty of legitimate tax reduction
insurance plans out there. Just make sure that you know the history of the
people with whom you conduct business.
Remember, if something looks too good to be true, it usually is. Be careful.
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.
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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