IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A

IRS Attacks Business Owners in 419, 412, Section 79 and 
Captive Insurance Plans Under Section 6707ABy Lance Wallach

Taxpayers who previously adopted 419, 412i, captive
insurance or Section 79 plans are in big trouble.In recent years, the IRS has identified many of these arrangements as abusive devices 
to funnel tax deductible dollars to shareholders and classified these
arrangements as listed transactions." These plans were sold by insurance agents, 
financial planners, accountants and attorneys seeking large life insurance
commissions. In general, taxpayers who engage in a “listed transaction” must report 
such transaction to the IRS on Form 8886 every year that they “participate” in
the transaction, and you do not necessarily have to make a contribution or claim a tax 
deduction to participate. Section 6707A of the Code imposes severe penalties
for failure to file Form 8886 with respect to a listed transaction. But you are also in 
trouble if you file incorrectly. I have received numerous phone calls from
business owners who filed and still got fined. Not only do you have to file Form 8886, but 
it also has to be prepared correctly. I only know of two people in the U.S. who have filed 
these forms properly for clients. They tell me that was after hundreds of hours of 
research and over 50 phones calls to various IRS personnel.
The filing instructions for Form 8886 presume a timely filling. Most people file late and 
follow the directions for currently preparing the forms. Then the IRS fines
the business owner. The tax court does not have jurisdiction to abate or lower such 
penalties imposed by the IRS. Read more here