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How to Avoid IRS Fines for You and Your Clients OCT 26, 2010 | BY LANCE WALLACH EMAIL LINKEDIN TWITTER FACEBOOK GOOGLE+ SHARE THIS STORY Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.
A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."
If your client was currently is in a 412(i), 419, captive insurance, or Section 79 plan, they may be in big trouble. Accountants who signed a tax return for a client in one of these plans may be what the IRS calls a "material advisor" and subject to a maximum $200,000 fine.
If you are an insurance professional who sold or advised on one o
Notes 1. Notice 2007-84, 2007-45 IRB 960. 2. Rev. Rul. 2007-65, 2007-45 IRB 949. 3. There are valid arguments that the IRS position is wrong and would be overruled if subject to legal challenge. See David S. Neufeld, The 419(e) Plan: Reports of Its Death Have Been Greatly Exaggerated, J. Fin. Serv. Profs., Oct. 2008, at page 61. Until then this is the IRS position, and clients need to make informed decisions prior to choosing to take the opposite position. 4. Rev. Rul. 2007-65, 2007-45 IRB 949
Few things create more distress than a letter from the IRS informing you that your captive has been selected for a tax audit. Similarly, the audit of the operating companies can be expanded to an audit of the captive. With captives becoming more popular and with revenue pressure increasing, the chances of a captive insurance company and/or its owners being selected for audit by the IRS are higher than ever. Proper planning for an IRS examination should begin well before you are notified of the audit. Indeed, thinking about the potential challenges of a tax audit should start with the captive's initial feasibility study, and should continue throughout the life-span of the captive. The chances of prevailing in an IRS audit can be greatly improved if you understand why captives are selected for audit, how an audit is conducted, and how proper planning can mitigate the possibility of an adverse outcome.
This session will take you through the IRS audit process, from inception to resolution, including appeal and litigation. We will examine the legal and procedural environment in which an IRS audit is conducted. We will explore the factors that may increase your risk of audit, and we will share practical advice and "best practices" on how to effectively deal with the IRS during the audit.
Through a combination of discussion, examples and "war stories", participants will learn about: How the IRS is organized and operates The life-cycle of the IRS audit process Practice and conduct before the IRS How and why captives are selected for audit Types of IRS audits Common IRS audit issues for captives Preparing for the audit Handling "unagreed" issues (negotiations, appeals, and litigation) Through better awareness of proper training and advance planning, participants should come away from the session with a better understanding of not just how to survive an IRS audit, but on how to successfully handle all aspects of the audit to maximize the odds of receiving a "no change" letter from the IRS.
The Internal Revenue Service announced today the mailing of a time-limited settlement offer for certain taxpayers under audit who participated in abusive micro-captive insurance transactions.
All you wanted was a comfortable retirement. What you got was fraud, incompetence, and scams. Fortunately, Lance Wallach and his team are here to help you protect your assets and keep the IRS out of your pockets!
Remember, many advisory firms offer financial planning, insurance, and investment services, but the difference is that Lance Wallach wrote the books on life insurance as well as financial and estate planning that the other consultants learned from!
If you want to sleep soundly at night, don't go to the students for your financial solutions, go to the one who teaches them - Lance Wallach!
ReplyDeleteHOME
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FILED UNDER:MARKETS, SENIOR MARKET
How to Avoid IRS Fines for You and Your Clients
OCT 26, 2010 | BY LANCE WALLACH
EMAIL
LINKEDIN
TWITTER
FACEBOOK
GOOGLE+
SHARE THIS STORY
Beware: The IRS is cracking down on small-business owners who participate in tax-reduction insurance plans sold by insurance agents, including defined benefit retirement plans, IRAs, and even 401(k) plans with life insurance. In these cases, the business owner is motivated by a large tax deduction; the insurance agent is motivated by a substantial commission.
A few years ago, I testified as an expert witness in a case in which a physician was in an abusive 401(k) plan with life insurance. It had a so-called "springing cash value policy" in it. The IRS calls plans with these types of policies "listed transactions." The judge called the insurance agent "a crook."
If your client was currently is in a 412(i), 419, captive insurance, or Section 79 plan, they may be in big trouble. Accountants who signed a tax return for a client in one of these plans may be what the IRS calls a "material advisor" and subject to a maximum $200,000 fine.
If you are an insurance professional who sold or advised on one o
Notes
ReplyDelete1. Notice 2007-84, 2007-45 IRB 960.
2. Rev. Rul. 2007-65, 2007-45 IRB 949.
3. There are valid arguments that the IRS position is wrong and would be overruled if subject to legal challenge. See David S. Neufeld, The 419(e) Plan: Reports of Its Death Have Been Greatly Exaggerated, J. Fin. Serv. Profs., Oct. 2008, at page 61. Until then this is the IRS position, and clients need to make informed decisions prior to choosing to take the opposite position.
4. Rev. Rul. 2007-65, 2007-45 IRB 949
Few things create more distress than a letter from the IRS informing you that your captive has been selected for a tax audit. Similarly, the audit of the operating companies can be expanded to an audit of the captive. With captives becoming more popular and with revenue pressure increasing, the chances of a captive insurance company and/or its owners being selected for audit by the IRS are higher than ever. Proper planning for an IRS examination should begin well before you are notified of the audit. Indeed, thinking about the potential challenges of a tax audit should start with the captive's initial feasibility study, and should continue throughout the life-span of the captive. The chances of prevailing in an IRS audit can be greatly improved if you understand why captives are selected for audit, how an audit is conducted, and how proper planning can mitigate the possibility of an adverse outcome.
ReplyDeleteThis session will take you through the IRS audit process, from inception to resolution, including appeal and litigation. We will examine the legal and procedural environment in which an IRS audit is conducted. We will explore the factors that may increase your risk of audit, and we will share practical advice and "best practices" on how to effectively deal with the IRS during the audit.
Through a combination of discussion, examples and "war stories", participants will learn about:
How the IRS is organized and operates
The life-cycle of the IRS audit process
Practice and conduct before the IRS
How and why captives are selected for audit
Types of IRS audits
Common IRS audit issues for captives
Preparing for the audit
Handling "unagreed" issues (negotiations, appeals, and litigation)
Through better awareness of proper training and advance planning, participants should come away from the session with a better understanding of not just how to survive an IRS audit, but on how to successfully handle all aspects of the audit to maximize the odds of receiving a "no change" letter from the IRS.
The Internal Revenue Service announced today the mailing of a time-limited settlement offer for certain taxpayers under audit who participated in abusive micro-captive insurance transactions.
ReplyDeletehinc
ReplyDeleteAll you wanted was a comfortable retirement. What you got was fraud, incompetence, and
scams. Fortunately, Lance Wallach and his team are here to help you protect your assets and
keep the IRS out of your pockets!
Remember, many advisory firms offer financial planning, insurance, and investment services,
but the difference is that Lance Wallach wrote the books on life insurance as well as
financial and estate planning that the other consultants learned from!
If you want to sleep soundly at night, don't go to the students for your financial solutions, go to
the one who teaches them - Lance Wallach!