No Shelter Here September 2011 Backlash on too-good-to-be-true insurance plan
By: Lance Wallach
During the past few years, the Internal Revenue Service (IRS) has fined many business owners hundreds of thousands of dollars for participating in several particular types of insurance plans. The 412(i), 419, captive insurance, and section 79 plans were marketed as a way for small-business owners to set up retirement, welfare benefit plans, or other tax-deductible programs while leveraging huge tax savings, but the IRS put most of them on a list of abusive tax shelters, listed transactions, or similar transactions, etc., and has more recently focused audits on them. Many accountants are unaware of the issues surrounding these plans, and many big-name insurance companies are still encouraging participation in them. Seems Attractive The plans are costly up-front, but your money builds over time, and there’s a large payout if the money is removed before death. While many business owners have retirement plans, they also must care for their employees. With one of these plans, business owners are not required to give their workers anything. Gotcha Although small business has taken a recessionary hit and owners may not be spending big sums on insurance now, an IRS task force is auditing people who bought these as early as 2004. There is no statute of limitations. The IRS also requires participants to file Form 8886 informing the IRS of participation in this “abusive transaction.” Failure to file or to file incorrectly will cost the business owner interest and penalties. Plus, you’ll pay back whatever you claimed for a deduction, and there are additional fines — possibly 70% of the tax benefit you claim in a year. And, if your accountant does not confidentially inform on you, he or she will get fined $100,000 by the IRS. Further, the IRS can freeze assets if you don’t pay and can fine you on a corporate and a personal level despite the type of business entity you have. Legal Wrangling Currently, small businesses facing audits and potentially huge tax penalties over these plans are filing lawsuits against those who marketed, designed, and sold the plans. Find out promptly if you have one of these plans and seek advice from a knowledgeable accountant to help you properly file Form 8886.
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 Prot
ReplyDeleteRemodeling Hanley / Wood
No Shelter Here September 2011
Backlash on too-good-to-be-true insurance plan
By: Lance Wallach
During the past few years, the Internal Revenue Service (IRS) has fined many business owners hundreds of thousands of dollars for participating
in several particular types of insurance plans.
The 412(i), 419, captive insurance, and section 79 plans were marketed as a way for small-business owners to set up retirement, welfare benefit
plans, or other tax-deductible programs while leveraging huge tax savings, but the IRS put most of them on a list of abusive tax shelters, listed
transactions, or similar transactions, etc., and has more recently focused audits on them. Many accountants are unaware of the issues
surrounding these plans, and many big-name insurance companies are still encouraging participation in them.
Seems Attractive
The plans are costly up-front, but your money builds over time, and there’s a large payout if the money is removed before death. While many
business owners have retirement plans, they also must care for their employees. With one of these plans, business owners are not required to
give their workers anything.
Gotcha
Although small business has taken a recessionary hit and owners may not be spending big sums on insurance now, an IRS task force is auditing
people who bought these as early as 2004. There is no statute of limitations.
The IRS also requires participants to file Form 8886 informing the IRS of participation in this “abusive transaction.” Failure to file or to file
incorrectly will cost the business owner interest and penalties. Plus, you’ll pay back whatever you claimed for a deduction, and there are
additional fines — possibly 70% of the tax benefit you claim in a year. And, if your accountant does not confidentially inform on you, he or she will
get fined $100,000 by the IRS. Further, the IRS can freeze assets if you don’t pay and can fine you on a corporate and a personal level despite the
type of business entity you have.
Legal Wrangling
Currently, small businesses facing audits and potentially huge tax penalties over these plans are filing lawsuits against those who marketed,
designed, and sold the plans. Find out promptly if you have one of these plans and seek advice from a knowledgeable accountant to help you
properly file Form 8886.
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 Prot