Don’t Get Caught in Section 79 Trap
One doctor almost lost everything ………..
The Internal Revenue Service is looking very closely at all types of retirement plans these days, desperately trying to increase the federal treasury by uncovering and fining what it can call “abusive tax shelters.” Insurance agents, accountants and other financial advisors have been downplaying the Section 79 plans, convincing potential buyers that they need not worry about Section 79 plans because they are not on the IRS radar. We now have proof that’s not true, and anyone considering investing in a Section 79 plan should remember this story before they turn over their hard earned cash.
In 2006 Doctor X found himself in what he thought was the pleasant position of having a substantial amount of cash on hand that was not essential to the operation of his practice. That comfortable feeling did not last long. He quickly fell prey to a predatory insurance agent who sold him on the idea of Section 79 scam as a vehicle to obtain tax deductions. Of course what really interested the insurance agent was the funding vehicle, a large life insurance contract with American General as the insurance carrier, which just happened to net the agent a large commission.
Unfortunately, the large, questionable tax deductions claimed by Doctor X indeed attracted the attention of the IRS. As a result of their audit, the IRS not only disallowed all of the tax deductions, but also imposed back taxes, an array of penalties, and interest, turning the doctor’s anticipated investment vehicle into something that could cost him everything he was saving and more. As if that weren’t bad enough, even that draconian action was not the end of the story.
None of his so-called financial advisors had told Doctor X about IRC Section 6707A. Under this section of the code, huge fines can be imposed on those who fail to inform the Service about participation in listed or reportable transactions. Loosely defined, this means any transaction, which has the potential for tax avoidance or evasion. Since he had no knowledge of this requirement, the doctor did not make the proper filings under Section 6707A, and is now also being threatened with monstrous fines for that failure to submit the proper forms in the proper format.
Although these issues had the potential for great disaster and great financial loss for this doctor, all the anxiety and stress he has been suffering over this matter may soon have a happier ending than he expected at its onset because he had the sense to contact us for help, perhaps just in the nick of time. As a result of putting experts with a great deal of experience on his case, he now stands an excellent chance of having at least some of the penalties from the original audit abated. He will probably be able to recover the money that he sank into that large, useless American General life insurance contract as well. Last, but certainly not least, Doctor C also has an excellent chance of avoiding the large Section 6707A penalties, as our experts in the art of filing late without paying fines are currently at work on that as well.
Section 79 Plans
ReplyDeletebank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for
hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A
whopping $90,000. That’s it.
But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009
amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming
forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is
too small for the IRS, and nothing is too old.
“So, to save a whopping $40,624 in taxes, this guy risked a felony conviction and prison time,
not to mention steep penalties that could very easily eat up the entire $90,000, and also his
criminal and civil defense costs.
The smart taxpayers are the ones coming forward and not having to look over their shoulders
for the next 10 years.
Time is running out. The tax amnesty runs through August but it takes at least days to jump
through all the hoops. We will also fight hard to reduce the penalties down even more.
Remember, the IRS can go as low as 5%. Don’t want this to happen to you? Visit
taxadvisorexpert.com today!
Copyright (C) 2014 Lance Wallach
All rights reserved
Most people have never heard of a Section 79 Plan, because it is a wealth building tool pitched by
insurance agents who really do not understand the math behind the plan.
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Office
516-938-5007
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section79expert
July The Newspaper of the NYSSCPA
Vol. 10, No.13
________________________________________
By Lance Wallach, CLU, ChFC, CIMC, and Ron Snyder, JD, EA
Following the U.S. Congress’ lead, on April 10 the IRS issued final regulations under Section 409A of the Internal
Revenue Code. If the rules seemed unclear before, they are crystal clear now: Most of the so-called “419(e)” plans as
well as the remaining 419A(f)(6) plans are in violation of the law and subject to hefty penalties.
A 419(e) plan is a benefit plan that generally seeks to make the purchase of life insurance tax-deductible to employers.
While the concept is appealing, most of the existing arrangements have permitted the plans to transfer the insurance
policies to the participants upon retirement.
To Read More Click Here
Abusive Insurance and Retirement Plans
Single–employer section 419 welfare benefit plans are the latest incarnation in insurance deductions the
IRS deems abusive
BY LANCE WALLACH
XECUTIVE SUMMARY
Some of the listed transactions CPA tax practitioners are most likely to encounter are employee benefit
insurance plans that the IRS has deemed abusive. Many of these plans have been sold by promoters in
conjunction with life insurance companies.
As long ago as 1984, with the addition of IRC §§ 419 and 419A, Congress and the IRS took aim at unduly
accelerated deductions and other perceived abuses. More recently, with guidance and a ruling issued in
fall 2007, the Service declared as abusive certain trust arrangements involving cash-value life insurance
and providing post-retirement medical and life insurance benefits.
The new "more likely than not" penalty standard for tax preparers under IRC § 6694 raises the stakes for
CPAs whose clients may have maintained or participated in such a plan. Failure to disclose a listed
transaction carries particularly severe potential penalties.
Lance Wallach, CLU, ChFC, CIMC, is the author of the AICPA’s The Team Approach to Tax, Financial and
Estate Planning. He can be reached at lawallach@aol.com or on the Web at, www.vebaplan.com or 516-
938-5007. The information in this article is not intended as accounting, legal, financial or any other type of
advice for any specific individual or other entity. You should consult an appropriate professional for such
advice.