Reportable Transactions Resources
The IRS Says:
516 - 935 - 7346

The dangers of being "Listed"by the IRS

A warning for 419, 412i, Sec.79 and captive insurance
“captive insurance” cresp “Ridge Plan” “Professional benefits Trust” PBT “ "Dennis Cunning" "Steve Toth"
shelter assistance" "irs penalty abatement" "expert witness irs" veba "expert witness services" "expert witness irs help" "pension audit" "Grist Mill Trust" Benistar
"SADI Trust" "Beta 419" "Millennium Plan" Bisys "Creative Services Group" "Sterling Benefit Plan" "Compass 419" Niche  "Sea Nine Veba" 419 412i 419e "expert
witness insurance" "welfare benefit plans" "419 plan help" "expert witness irs"
Allianz Life of North America,Ameritas Life,Amerus Life,Great-West Life, Indianapolis Life,Jacksom National,Jefferson-Pilot Life,Lincoln Benefit Life,Lincoln National
Life,Manufacturers Life,Massachusetts Mutual,Metropolitan Life,Midland Life,Minnesota Mutual,Principal Life,Reliastar,Security Mutual,USG Annuity & Life,Western
Reserve Life Assurance
Call 516
Natural persons who fail
to disclose a reportable
transaction to the IRS
penalty. Other
nonreporting taxpayers
are subject to a $50,000

The penalties are
increased to $100,000
and $200,000,
respectively, for natural
persons and other
taxpayers who fail to
disclose a reportable
transaction that is a
listed transaction
Email an
Dennis Cunning         Steve Toth                 Randall Smith
Larry Bell                    Scott Ridge               Judy Carsrud                  
Greg Roper                 Joseph Donnelly
Norm Bevan               Michael Sonnenberg   
Dan Carpenter            Anthony Fakouri
Steve Burgess
Have You Dealt With Any Of These People?
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 ($200,000 for a business and $100,000 for an
individual) 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 has to be prepared correctly. I only know of two people in the United States who have filed these forms properly for
clients. They tell me that was after hundreds of hours of research and over fifty phones calls to various IRS

The filing instructions for Form 8886 presume a timely filing.  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. Many business owners adopted 412i, 419, captive insurance and Section 79 plans based upon
representations provided by insurance professionals that the plans were legitimate plans and were not informed that they were
engaging in a listed transaction.  Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section
6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from these taxpayers caused Congress to
impose a moratorium on assessment of Section 6707A penalties.

The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the
imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of
assessing tax.  Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are
confused and upset by the IRS's inquiry, especially when the taxpayer had previously reached a monetary settlement with the
IRS regarding its deductions.  Logic and common sense dictate that a penalty should not apply if the taxpayer no longer
benefits from the arrangement.

Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed transaction if the taxpayer's tax return
reflects tax consequences or a tax strategy described in the published guidance identifying the transaction as a listed
transaction or a transaction that is the same or substantially similar to a listed transaction.  Clearly, the primary benefit in the
participation of these plans is the large tax deduction generated by such participation.  It follows that taxpayers who no longer
enjoy the benefit of those large deductions are no longer "participating ' in the listed transaction.  But that is not the end of the

Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax
deductions by continuing the deferral of income from contributions and deductions taken in prior years.  While the regulations
do not expand on what constitutes "reflecting the tax consequences of the strategy", it could be argued that continued benefit
from a tax deferral for a previous tax deduction is within the contemplation of a "tax consequence" of the plan strategy. Also,
many taxpayers who no longer make contributions or claim tax deductions continue to pay administrative fees.  Sometimes,
money is taken from the plan to pay premiums to keep life insurance policies in force.  In these ways, it could be argued that
these taxpayers are still "contributing", and thus still must file Form 8886.

It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction
as described in the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20 which
classifies 419(e) transactions, appears to be concerned with the employer's contribution/deduction amount rather than the
continued deferral of the income in previous years.  This language may provide the taxpayer with a solid argument in the event
of an audit.  

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, financial and estate planning, and abusive tax shelters.  He writes
about 412(i), 419, 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.

Contact him at 516.938.5007, or visit or

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific
individual or other entity.  You should contact an appropriate professional for any such advice.
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