Business Expenses: captive insurance

Showing posts with label captive insurance. Show all posts

Want To Get Audited, Here Is One Way.

Lance Wallach

One day your accountant suggested that she knew a life insurance agent who could help you with your taxes. You met with him, you listened to his pitch about a pension plan, and you asked a lot of questions. He suggested a 412iplan, whatever that is. From the initial description it sounded as if you would have to fund retirement for your rotating staff, which you weren’t interested in doing, but he told you that he could arrange an executive, carve out.
You’ve been hearing that the IRS is after “listed transactions” and you’re worried. Suddenly you’re having a tough time the insurance agent that sold you the plan return your calls. The insurance company whose products fund your plan has taken your calls, but for the fourth time in as many months an agent has promised to get back to you.
You have gone to a new accountant and you learn that the plan was unsuited for you, it was formed improperly, and it’s going to cost you a lot more money than you have to pay the IRS not to mention the accountant and the actuary to sort it all out. Now you are worried that the problems may wipe out your retirement nest egg and keep you working years longer than you intended.
Fortunately, there are ways to provide for your retirement that can afford you tax benefits while creating a solid retirement fund for your future so that you won’t have to be “that doctor”. However, getting there doesn’t necessarily start with cousin Tilly’s insurance agent friend or the “financial planner” you met on the golf course. If you want to avoid problems in your retirement plans, there are some things you should do.

Be careful. Don’t be “that professional” whose retirement assets are wiped out because of cousin Tilly’s friend. But if you are “that professional”, then make sure you protect yourself. You put yourself in the hands of others to properly protect you and to make sure that the 412i plan, the 419 plan, captive insurance or the section 79 scam that they recommended to you were appropriate and properly set up. When they fail, they need to pay to solve the problems they caused.

Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He is an American Institute of CPA’s course developer and instructor and has authored numerous best selling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us, lawyer4audits.com or call 516-938-5007.

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.

Captive Insurance & 419 Plans Litigation: June 2014

Lance Wallach Life Insurance: Captive Insurance Buyer Beware

Is a captive insurance cell the way to go? - Accounting Today - Captive Insurance: Achieve large tax and cost reductions by renting a “CAPTIVE”. Most accountants and small business owners are unfamiliar with a great way to reduce taxes and expenses. By either creating or sharing “a captive insurance company”, substantial tax and cost savings will benefit the small business owner.

To read the entire article, click here

Group Captives Insurance Scam - HG.org

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Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up their own insurance companies to provide coverage when they think that outside insurers are charging too much.

Read the full article here

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CAPTIVE INSURANCE

Captive Insurance & 419 Plans Litigation: September 2012

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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 more than 20 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public 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 AICPA best-selling books, including Avoiding

Captive Insurance & 419 Plans Litigation: September 2013

we work with policy owners, insurance agents and brokers in all types of litigation, including:

Life insurance claims denial
Strange Owned Life Insurance (STOLI) litigation
Insurance broker and agent negligence

Captive Insurance & 419 Plans Litigation: January 2013

Help with Common IRS Problems: Raymond Ankner -Expected to be the biggest life in...

The dangers of being "listed"

A warning for 419, 412i, Sec.79 and captive insurance

Accounting Today: October 25, 2010

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 personnel.

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 story. 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.

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