Reportable Transactions Resources - Article
Natural persons who fail
to disclose a reportable
transaction to the IRS
are subject to a $10,000
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
The IRS Says:
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Recent court cases and other developments have highlighted serious problems in plans popularly known as Benistar,
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.

Earlier this year, 70 armed IRS Criminal Division special agents raided the offices of Nova Benefit Plans in Connecticut.
The IRS has taken other recent criminal enforcement actions in other locations including Nebraska and Milwaukee,
Wisconsin. The IRS has told the court that it believes Nova is promoting abusive "Section 419" welfare benefit plans.

The IRS claims that a cooperating witness and several undercover agents "penetrated" Nova to ascertain its internal
operations. They say Nova helped its clients violate tax laws by claiming the most minor injuries as permanent disabilities
to qualify for special tax treatment. In other words, they would assist clients in claiming that a minor scrape was a disabling
and disfiguring permanent injury.

The IRS also claims that Nova assisted clients in backdating documents filed with the IRS.

How does the phony welfare benefit plan scam work? A taxpayer can contribute money tax free to the plan on behalf of
the beneficiary. At a later date, and with the assistance of Nova, the beneficiary can claim the money (again tax free)
because of a disability. According to the IRS, Nova's plan was a scam because Nova helped taxpayers claim false
disabilities. The Internal Revenue Code says disability payments are tax free if there is a permanent loss of a bodily part
or function. A small scrape is a far cry from the loss of an eye.

In one recorded conversation, a representative of Nova said, "We've never denied a claim... I recently, I don't want to say
the client's name, but he went through a minor surgery, had a little--had a mole removed off his elbow I think and left a
little scar the size of a pencil eraser, and, you know, that--that qualified."

When discussing the "independent plan trustee" that must approve the claims, the Nova representative said, "I, I'm gonna
put this very simply for you, we control the trustee, okay, and I, I don't mean that in a bad way. He's independent but he's
part of the family and we control the stuff that happens, we have ways to make stuff happen...It's best for us to pay out as
much claims so when it times for us to fight this in tax court, we can play and sing the welfare benefit song."

Nova is not alone in the scam. According to the IRS affidavit, Nova and its principals have also done business as U.S.
Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service and Benistar.

Anyone who has purchased a plan from Nova or the related entities should immediately seek competent counsel. If the
IRS is correct and these plans are not legitimate, the tax consequences to participants could be very severe. In some
cases, if clients entered these plans with knowledge of Nova's history or promises to evade taxes, the consequences
could involve criminal prosecution and perhaps prison.

As a result of the raid and a cooperating witness (we call these people informants), the IRS is believed to have the client
lists of Nova, Grist Mill and the others. Generally, as a matter of policy, the IRS will not criminally prosecute a taxpayer
who comes forward voluntarily and agrees to come into compliance. If the IRS knocks on your door first, however, all bets
are off and prosecution is much more likely.

Lance Wallach
68 Keswick Lane
Plainview, NY 11803
Ph.: (516)938-5007
Fax: (516)938-6330

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.

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