|Reportable Transactions Are Causing Business Owners Big Trouble
With the IRS Because They Are Being Handled Improperly
|Did you know that you must report certain transactions, or face fines up to
$50K per year? Do you even know if any of your transactions
fit the definition of "reportable?"
Let us guide you through this maze and keep you out of trouble with the IRS
The IRS Says:
Call 516-935-7346 or 516-938-5007
|Natural persons who fail
to disclose a reportable
transaction to the IRS
are subject to a $10,000
are subject to a $50,000
The penalties are
increased for natural
persons and other
taxpayers who fail to
disclose a reportable
transaction that is a
IRS has made many deductions reportable, but require specific
forms to properly disclose the transaction.
In an attempt to curb the use of abusive tax shelters, new, stiff
penalties are in effect for failure to adequately disclose a
reportable transaction to the IRS. But unlike most other
penalties, the law significantly limits the IRS’s ability to rescind
or abate these penalties for reasonable cause or other
This means that taxpayers must be much more vigilant in
identifying and disclosing these transactions. Even your CPA
may not recognize a particular transaction as reportable.
Don't fall into the trap of thinking that reportable transactions
are solely limited to what the IRS calls "abusive tax shelters."
The definition of a reportable transaction includes many
transactions that are routine and perfectly legitimate. It can
include any transaction with the potential for tax evasion or
avoidance. If you entered into any arrangement with the
primary purpose of avoiding or reducing taxes, that is probably
a reportable transaction that need to be disclosed.
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or email us
Some common examples are:
- Retirement plans
- Family limited partnerships
- Charitable Remainder Trust
- Foreign accounts
- Welfare benefit plans
- Captive Insurance
- Section 79 plans
- Life Insurance plans taken as a
- Various types of trusts including
Guam and offshore trusts
- Confidential transactions
- Loss transactions
- Back-dated retirement plan
- Abusive straddles
- Offshore employee leasing
- 412i plans
- S-Corporation income shifting
- FBAR,OVDI International Taxes
|issued by Nova Benefit Plans of Simsbury, Connecticut. Recently unsealed IRS criminal case information now raises
concerns with other plans as well. If you have any type plan issued by NOVA Benefit Plans, U.S. Benefits Group, Benefit
Plan Advisors, Grist Mill trusts, Rex Insurance Service or Benistar, get help at once. You may be subject to an audit or in
some cases, criminal prosecution.
On November 17th, 59 pages of search warrant materials were unsealed in the Nova Benefit Plans litigation currently
pending in the U.S. District Court for the District of Connecticut. According to these documents, the IRS believes that Nova
is involved in a significant criminal conspiracy involving the crimes of Conspiracy to Impede the IRS and Assisting in the
Preparation of False Income Tax Returns.
Read the rest of the breaking news article here "Millenium 419 plan Bankruptcy"
IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under
By 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
Breaking News: Don't Become A Material
Accounting Today July
Accountants, insurance professionals and others need to be careful
that they don’t become what the IRS calls material advisors. If they sell
or give advice, or sign tax returns for abusive, listed or similar plans;
they risk a minimum $100,000 fine. Their client will then probably sue
them after having dealt with the IRS.
In 2010, the IRS raided the offices of Benistar in Simsbury, Conn., and
seized the retirement benefit plan administration firm’s files and
records. In McGehee Family Clinic, the Tax Court ruled that a clinic and
shareholder’s investment in an employee benefit plan marketed under
the name “Benistar” was a listed transaction because it was
substantially similar to the transaction described in Notice 95-34 (1995-
1 C.B. 309). This is at least the second case in which the court has
ruled against the Benistar welfare benefit plan, by denominating it a
The McGehee Family Clinic enrolled in the Benistar Plan in May 2001
and claimed deductions for contributions to it in 2002 and 2005. The
returns did not include a Form 8886, Reportable Transaction
Disclosure Statement, or similar disclosure. 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. Click
here to read more.
Business Meals and Entertainment Expenses
Excerpt from FCICA Presents Tax, Insurance, and Cost Reduction Strategies for
Small Business by Lance Wallach
The 1993 tax law changed the amount allowable as a deduction for business
meals and entertainment expenses incurred after. In addition, some special
rules were enacted into the tax law. The limitation for deducting such expenses
incurred after December 31, 1993 is 50%. Accordingly, after the general rules and
exceptions are applied to meals and entertainment expenses incurred and the
total dollar amount is determined, the 50% rule must then be applied. Business
people must keep current with such rules or face the wrath of the IRS. The
purpose of this chapter is to explain the general rule, the exceptions, and the
special rules that are in effect for all business meals and entertainment
expenses. Read more here
How to Avoid IRS Fines for You and Your Clients
By Lance Wallach
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
If you are an insurance professional who sold or advised on one of these plans, the same holds true for you. Read more here
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS
Offshore International Today Aug 2011
You may want to think about participation in the IRS’ offshore tax amnesty program (called the Offshore
Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS? Some clients think they
are too small to be prosecuted. They are wrong.
To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank
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
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
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!
Our tax resolution offices have received calls regarding the following companies or plans:
CJA, CJA and Associates,"Professional Benefits Trust" PBI,"Sea Nine Veba",Bisys,The
"Beta Plan",The "Millennium Plan",The "Ridge Plan",Benistar,Niche,The "Grist Mill Trust"
The "Compass Welfare Benefit Plan"
IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams
By Lance Wallach June 2011
The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i and other plans that they considered abusive, listed, or
reportable transactions, or substantially similar to such transactions.
In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-115), the Tax Court ruled that an investment in an employee welfare benefit
plan marketed under the name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction
described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other
grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419
Plan and Trust were deductible. Curcio did not appear to have been decided yet at the time McGehee was argued. The McGehee opinion (Case
No. 10-102) (United States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant
Taxpayers and their representatives should be aware that the Service has disallowed deductions for contributions to these arrangements. The
IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers who sold them. Some of these
plans include defined benefit retirement plans, IRAs, or even 401(k) plans with life insurance.
In order to fully grasp the severity of the situation, one must have an understanding of Notice 95-34, which was issued in response to trust
arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits.
The promoters of these arrangements claimed that all employer contributions were tax-deductible when paid, by relying on the 10-or-more-
employer exemption from the IRC § 419 limits. It was claimed that permissible tax deductions were unlimited in amount.
In general, contributions to a welfare benefit fund are not fully deductible when paid. Sections 419 and 419A impose strict limits on the amount of
tax-deductible prefunding permitted for contributions to a welfare benefit fund. Section 419A(F)(6) provides an exemption from Section 419 and
Section 419A for certain “10-or-more employers” welfare benefit funds. In general, for this exemption to apply, the fund must have more than one
contributing employer, of which no single employer can contribute more than 10% of the total contributions, and the plan must not be experience-
rated with respect to individual employers.
According to the Notice, these arrangements typically involve an investment in variable life or universal life insurance contracts on the lives of the
covered employees. The problem is that the employer contributions are large relative to the cost of the amount of term insurance that would be
required to provide the death benefits under the arrangement, and the trust administrator may obtain cash to pay benefits other than death
benefits, by such means as cashing in or withdrawing the cash value of the insurance policies. The plans are also often designed so that a
particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from
the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the
economic realities of the arrangements.
Benistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The
benefits of enrollment listed in its advertising packet included:
* Virtually unlimited deductions for the employer;
* Contributions could vary from year to year;
* Benefits could be provided to one or more key executives on a selective basis;
* No need to provide benefits to rank-and-file employees;
* Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;
* Funds inside the plan would accumulate tax-free;
* Beneficiaries could receive death proceeds free of both income tax and estate tax;
* The program could be arranged for tax-free distribution at a later date;
* Funds in the plan were secure from the hands of creditors.
The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times. In rendering its decision
the court heavily cited Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable
or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the
death benefits under the arrangement. The Benistar Plan owned the insurance contracts.
Following Curcio, as the Court has stipulated, the Court held that the contributions to Benistar were not deductible under section 162(a) because
participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by
Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were
willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates,
the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally
assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The
returns did not include a Form 8886,Reportable Transaction Disclosure Statement, or similar disclosure.
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% 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.
More you should know:
* In recent years, some section 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 412i 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 transactions.
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 file forms, and they still all received very large IRS fines for not properly filling in the forms.
IRS has been attacking all 419 welfare benefit plans, many 412i retirement plans, captive insurance plans with life insurance in them and Section
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 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 the AICPA best-selling books, including Avoiding
Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case.
Contact him at 516.938.5007, firstname.lastname@example.org or visit www.vebaplan.com.
68 Keswick Lane
Plainview, NY 11803
Fax: (516)938-6330 www.vebaplan.com
National Society of Accountants Speaker of The Year
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You
should contact an appropriate professional for any such advice.
IRS Audits Focus on Captive Insurance Plans April 2011 Edition
April 2011 Edition
By Lance Wallach
The IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed,
or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only
does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for
not properly filing. To Read More Click Below: