Wednesday, May 10, 2017

Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans -

Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans -


  1. Articles Portal To Answer Your Section 79 Questions, Problems, Issues

    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 percent
    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.

    Other important facts:

    · In recent years, some § 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 is considered 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 412(i) plans.
    · An employer has not engaged in a listed transaction simply because it is a 412(i) plan.
    · Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan
    engaged in a listed transaction. Some 412(i) plans have been audited and sanctioned for issues not related to listed

    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, 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 filled in properly. A plan administrator
    told me that he assisted hundreds of his participants with filing forms, and they still all received very large IRS fines for
    not properly filling in the forms.

    IRS has targeted all 419 welfare benefit plans, many 412(i) 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 American Institute of CPAs
    faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and
    abusive tax shelters. He speaks at more than ten conventions annually and writes for over fifty publications. 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
    AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business

  2. FBAR and Offshore Matters

    Advising clients about Foreign Bank Account Report (FBAR), Foreign Account Tax Compliance Act (FATCA), and other information reporting requirements; assisting clients in FBAR and FACTA compliance including participation in IRS forgiveness programs, and representing clients with FBAR and FACTA penalties.

  3. Recent IRS rulings and a U.S. Tax Court decision continue to lay a solid foundation for captive insurance companies. However, the tax requirements must be strictly followed. Below we provide anbor" rulings.