Showing posts with label reportable transactions. Show all posts
Showing posts with label reportable transactions. Show all posts
Reportable Transactions & 419 Plans Litigation: CJA and associates 419 412i section 79 scam audits...
Reportable Transactions & 419 Plans Litigation: CJA and associates 419 412i section 79 scam audits...: CJA and associates 419 412i section 79 scam audits lawsuits
Section 79 Plans: You get what you pay for, how much do people pay f...
Section 79 Plans: You get what you pay for, how much do people pay f...: Lance Wallach Would you go to a dentist for heart surgery? They are both doctors? Like any other professional service, such as legal...
Business Meals and Entertainment Expenses: Business Meals and Entertainment Expenses
Business Meals and Entertainment Expenses: Business Meals and Entertainment Expenses: Excerpt from FCICA Presents Tax, Insurance, and Cost Reduction Strategies for Small Business by Lance Wallach and Dr. Bart Basi Summer ‘08...
| THE "IRS Watchdog"Is Waiting For Your Call !!516 - 938 - 5007Let him battle the IRS for you!!Lance Wallach the nation's leading tax resolution expert and his team of CPAs, former IRS Agents, Tax Attorneys, and Tax Audit Professionals will fight the IRS and insurance companies who sold you "abusive tax shelters! There are solutions that could save you THOUSANDS OF DOLLARS! | |||
| Make The Pain Go Away With The IRS Watchdog!Get the help you need from"Lance Wallach", the nation's leading tax resolution authority, and his team of experienced CPAs, former IRS agents, tax attorneys, and tax audit professionals will fight the IRS for you so you don't have to! Call 516 -938-500 |
If the IRS Contacts You... - HG.org
Keep your mouth shut-take this advice seriously.
If you give the agents any opening, you're dead.
They'll start with soft background questions, but before you know it, will have trapped you. And many questions won't be genuine-that is, the agents already know the answers and are asking only to see if you will lie or confess.
Questions typically asked by agents include:
Have you reported all of your income?
Where are your bank accounts and safe deposit boxes?
Can you tell us about the cars, boats, planes, and real estate that you own?
What is the procedure for reporting sales in your business?
Do you keep a lot of cash on hand?
Who are your business associates?
Have you traveled out of the country recently?
Have you or any of your businesses been audited?
Faced with a barrage of questions from trained agents who show up unannounced, most people fall apart. They either blurt out a confession or a transparent lie within five minutes. This gives the Justice Department the rope to hang them with.
Don't Let that happen to you.
ABOUT THE AUTHOR: Lance Wallach
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.
Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
If the IRS Contacts You... - HG.org
They'll start with soft background questions, but before you know it, will have trapped you. And many questions won't be genuine-that is, the agents already know the answers and are asking only to see if you will lie or confess.
Questions typically asked by agents include:
Have you reported all of your income?
Where are your bank accounts and safe deposit boxes?
Can you tell us about the cars, boats, planes, and real estate that you own?
What is the procedure for reporting sales in your business?
Do you keep a lot of cash on hand?
Who are your business associates?
Have you traveled out of the country recently?
Have you or any of your businesses been audited?
Faced with a barrage of questions from trained agents who show up unannounced, most people fall apart. They either blurt out a confession or a transparent lie within five minutes. This gives the Justice Department the rope to hang them with.
Don't Let that happen to you.
ABOUT THE AUTHOR: Lance Wallach
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.
Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans
Section 79 Plans: Section 79, Captive Insurance, IRS Audits and Lawsuits on 419 and 412i Plans (click the link to go to the page)
While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Hg Experts
Legal Experts Directory
By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A - 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.
"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."
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. 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. Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated. To avoid the fine, the CPA has to properly file Form 8918.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
"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."
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. 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. Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated. To avoid the fine, the CPA has to properly file Form 8918.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
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.
While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...
Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...: I’ve had several calls lately from doctors who are being pitched Section 79 plans and are wondering if these plans are any good. The doctor...
Captive Insurance Buyer Beware
Captive Insurance Buyer Beware
By
Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
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.
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.
Over 80% of Fortune 500 companies take advantage of
some kind of captive insurance company arrangement. They set up their own
insurance companies to provide coverage when they think outside insurers are
charging too much, or coverage is simply unavailable. The parent company
creates a captive so that it has a self-financing option for buying insurance.
The captive then either retains the risk of providing insurance or pays
reinsurers (companies that reinsure insurers) to take the risk.
If you buy insurance from a standard insurance company, your money buys a
service, but the money is spent and gone forever. When you utilize or “rent a
captive”, your money buys a service but it is invested with a good possibility
of a return.
In the event of a claim, the company pays claims from its captive or from its
reinsurer. To keep costs down, captives are often based in places where there
is favorable tax treatment and less onerous regulation (i.e. Vermont, South
Carolina, and Bermuda).
Optimum utilization of a captive by a small business, medical practice, or
professional.
The best way for a small business, medical practice, etc., to take advantage of
captive benefits is to share or rent a large captive. You can significantly
decrease your costs of insurance and obtain tax deductions at the same time.
There are, as well, significant tax advantages to renting a large captive as
opposed to owning a captive.
The advantages of “renting a captive” become apparent when you consider that
the single parent captive may be forced to use less than adequate standards or
marginal service so they can meet the financial requirements associated with
the initial general licensing and administrative costs of establishment.
Additionally, when renting a large captive, the captive bears the burden of
initial capital commitment and protects reinsurers from runaway claims and
unnecessary losses through their underwriting protocols and claims management
practices, all at significant savings to the small business owner.
Other advantages include low policy fees and no capital responsibilities to
meet solvency requirements or annual management and maintenance costs. By
renting a large captive, you only pay a pro rata fee to cover all
administrative expenses for the captive insurance company. Another significant
advantage of renting a large captive is the ability to take a loan. It is
illegal for an individual captive to make loans to subscribers. When renting a
large captive, however, the individual subscriber has no ownership interest,
and this difference makes it legal for a rented captive to make loans to
individual subscribers. So you can make a tax deductible contribution, and then
take back money tax free. Operation of an individual stand alone captive
insurance company may not achieve the type of cost savings that a small
business could obtain by renting a large captive. To rent a large captive, your
company simply fills out some forms. Renting a captive requires no significant
financial commitment beyond the payment of premiums.
Buyer Beware
As with many strategies to enjoy tax savings and advantages, you must to do
this correctly. IRS and other problems have happened, in the past, to those
that have done this improperly or abusively. You probably want to work with a
large captive that already has over fifty million in assets and is being rented
by at least 200 different companies. Also, you’ll not want to own or control
any part of the captive. As an unrelated party, you can more likely
significantly decrease your cost of insurance, eliminate capital requirements,
and minimize maintenance costs.
You want to deal with a large captive that meets the risk shifting requirements
of IRS Revenue Ruling 2005-40. Be cautious about setting up your own small
captive. In addition to all the costs, a small captive may find that the
expense of defending itself from regulatory oversight is much greater than any
benefits received.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
some kind of captive insurance company arrangement. They set up their own
insurance companies to provide coverage when they think outside insurers are
charging too much, or coverage is simply unavailable. The parent company
creates a captive so that it has a self-financing option for buying insurance.
The captive then either retains the risk of providing insurance or pays
reinsurers (companies that reinsure insurers) to take the risk.
If you buy insurance from a standard insurance company, your money buys a
service, but the money is spent and gone forever. When you utilize or “rent a
captive”, your money buys a service but it is invested with a good possibility
of a return.
In the event of a claim, the company pays claims from its captive or from its
reinsurer. To keep costs down, captives are often based in places where there
is favorable tax treatment and less onerous regulation (i.e. Vermont, South
Carolina, and Bermuda).
Optimum utilization of a captive by a small business, medical practice, or
professional.
The best way for a small business, medical practice, etc., to take advantage of
captive benefits is to share or rent a large captive. You can significantly
decrease your costs of insurance and obtain tax deductions at the same time.
There are, as well, significant tax advantages to renting a large captive as
opposed to owning a captive.
The advantages of “renting a captive” become apparent when you consider that
the single parent captive may be forced to use less than adequate standards or
marginal service so they can meet the financial requirements associated with
the initial general licensing and administrative costs of establishment.
Additionally, when renting a large captive, the captive bears the burden of
initial capital commitment and protects reinsurers from runaway claims and
unnecessary losses through their underwriting protocols and claims management
practices, all at significant savings to the small business owner.
Other advantages include low policy fees and no capital responsibilities to
meet solvency requirements or annual management and maintenance costs. By
renting a large captive, you only pay a pro rata fee to cover all
administrative expenses for the captive insurance company. Another significant
advantage of renting a large captive is the ability to take a loan. It is
illegal for an individual captive to make loans to subscribers. When renting a
large captive, however, the individual subscriber has no ownership interest,
and this difference makes it legal for a rented captive to make loans to
individual subscribers. So you can make a tax deductible contribution, and then
take back money tax free. Operation of an individual stand alone captive
insurance company may not achieve the type of cost savings that a small
business could obtain by renting a large captive. To rent a large captive, your
company simply fills out some forms. Renting a captive requires no significant
financial commitment beyond the payment of premiums.
Buyer Beware
As with many strategies to enjoy tax savings and advantages, you must to do
this correctly. IRS and other problems have happened, in the past, to those
that have done this improperly or abusively. You probably want to work with a
large captive that already has over fifty million in assets and is being rented
by at least 200 different companies. Also, you’ll not want to own or control
any part of the captive. As an unrelated party, you can more likely
significantly decrease your cost of insurance, eliminate capital requirements,
and minimize maintenance costs.
You want to deal with a large captive that meets the risk shifting requirements
of IRS Revenue Ruling 2005-40. Be cautious about setting up your own small
captive. In addition to all the costs, a small captive may find that the
expense of defending itself from regulatory oversight is much greater than any
benefits received.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
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.
accounting, financial or any type of advice for any specific individual or
other entity. You should contact an appropriate professional for any such
advice.
While every effort has been made to ensure the accuracy
of this publication, it is not intended to provide legal advice as individual
situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related
topics, please contact the author.
of this publication, it is not intended to provide legal advice as individual
situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related
topics, please contact the author.
Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...
Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...: I’ve had several calls lately from doctors who are being pitched Section 79 plans and are wondering if these plans are any good. The doctor...
Captive Insurance Buyer Beware
Captive Insurance Buyer Beware
By
Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
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.
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.
Over 80% of Fortune 500 companies take advantage of
some kind of captive insurance company arrangement. They set up their own
insurance companies to provide coverage when they think outside insurers are
charging too much, or coverage is simply unavailable. The parent company
creates a captive so that it has a self-financing option for buying insurance.
The captive then either retains the risk of providing insurance or pays
reinsurers (companies that reinsure insurers) to take the risk.
If you buy insurance from a standard insurance company, your money buys a
service, but the money is spent and gone forever. When you utilize or “rent a
captive”, your money buys a service but it is invested with a good possibility
of a return.
In the event of a claim, the company pays claims from its captive or from its
reinsurer. To keep costs down, captives are often based in places where there
is favorable tax treatment and less onerous regulation (i.e. Vermont, South
Carolina, and Bermuda).
Optimum utilization of a captive by a small business, medical practice, or
professional.
The best way for a small business, medical practice, etc., to take advantage of
captive benefits is to share or rent a large captive. You can significantly
decrease your costs of insurance and obtain tax deductions at the same time.
There are, as well, significant tax advantages to renting a large captive as
opposed to owning a captive.
The advantages of “renting a captive” become apparent when you consider that
the single parent captive may be forced to use less than adequate standards or
marginal service so they can meet the financial requirements associated with
the initial general licensing and administrative costs of establishment.
Additionally, when renting a large captive, the captive bears the burden of
initial capital commitment and protects reinsurers from runaway claims and
unnecessary losses through their underwriting protocols and claims management
practices, all at significant savings to the small business owner.
Other advantages include low policy fees and no capital responsibilities to
meet solvency requirements or annual management and maintenance costs. By
renting a large captive, you only pay a pro rata fee to cover all
administrative expenses for the captive insurance company. Another significant
advantage of renting a large captive is the ability to take a loan. It is
illegal for an individual captive to make loans to subscribers. When renting a
large captive, however, the individual subscriber has no ownership interest,
and this difference makes it legal for a rented captive to make loans to
individual subscribers. So you can make a tax deductible contribution, and then
take back money tax free. Operation of an individual stand alone captive
insurance company may not achieve the type of cost savings that a small
business could obtain by renting a large captive. To rent a large captive, your
company simply fills out some forms. Renting a captive requires no significant
financial commitment beyond the payment of premiums.
Buyer Beware
As with many strategies to enjoy tax savings and advantages, you must to do
this correctly. IRS and other problems have happened, in the past, to those
that have done this improperly or abusively. You probably want to work with a
large captive that already has over fifty million in assets and is being rented
by at least 200 different companies. Also, you’ll not want to own or control
any part of the captive. As an unrelated party, you can more likely
significantly decrease your cost of insurance, eliminate capital requirements,
and minimize maintenance costs.
You want to deal with a large captive that meets the risk shifting requirements
of IRS Revenue Ruling 2005-40. Be cautious about setting up your own small
captive. In addition to all the costs, a small captive may find that the
expense of defending itself from regulatory oversight is much greater than any
benefits received.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
some kind of captive insurance company arrangement. They set up their own
insurance companies to provide coverage when they think outside insurers are
charging too much, or coverage is simply unavailable. The parent company
creates a captive so that it has a self-financing option for buying insurance.
The captive then either retains the risk of providing insurance or pays
reinsurers (companies that reinsure insurers) to take the risk.
If you buy insurance from a standard insurance company, your money buys a
service, but the money is spent and gone forever. When you utilize or “rent a
captive”, your money buys a service but it is invested with a good possibility
of a return.
In the event of a claim, the company pays claims from its captive or from its
reinsurer. To keep costs down, captives are often based in places where there
is favorable tax treatment and less onerous regulation (i.e. Vermont, South
Carolina, and Bermuda).
Optimum utilization of a captive by a small business, medical practice, or
professional.
The best way for a small business, medical practice, etc., to take advantage of
captive benefits is to share or rent a large captive. You can significantly
decrease your costs of insurance and obtain tax deductions at the same time.
There are, as well, significant tax advantages to renting a large captive as
opposed to owning a captive.
The advantages of “renting a captive” become apparent when you consider that
the single parent captive may be forced to use less than adequate standards or
marginal service so they can meet the financial requirements associated with
the initial general licensing and administrative costs of establishment.
Additionally, when renting a large captive, the captive bears the burden of
initial capital commitment and protects reinsurers from runaway claims and
unnecessary losses through their underwriting protocols and claims management
practices, all at significant savings to the small business owner.
Other advantages include low policy fees and no capital responsibilities to
meet solvency requirements or annual management and maintenance costs. By
renting a large captive, you only pay a pro rata fee to cover all
administrative expenses for the captive insurance company. Another significant
advantage of renting a large captive is the ability to take a loan. It is
illegal for an individual captive to make loans to subscribers. When renting a
large captive, however, the individual subscriber has no ownership interest,
and this difference makes it legal for a rented captive to make loans to
individual subscribers. So you can make a tax deductible contribution, and then
take back money tax free. Operation of an individual stand alone captive
insurance company may not achieve the type of cost savings that a small
business could obtain by renting a large captive. To rent a large captive, your
company simply fills out some forms. Renting a captive requires no significant
financial commitment beyond the payment of premiums.
Buyer Beware
As with many strategies to enjoy tax savings and advantages, you must to do
this correctly. IRS and other problems have happened, in the past, to those
that have done this improperly or abusively. You probably want to work with a
large captive that already has over fifty million in assets and is being rented
by at least 200 different companies. Also, you’ll not want to own or control
any part of the captive. As an unrelated party, you can more likely
significantly decrease your cost of insurance, eliminate capital requirements,
and minimize maintenance costs.
You want to deal with a large captive that meets the risk shifting requirements
of IRS Revenue Ruling 2005-40. Be cautious about setting up your own small
captive. In addition to all the costs, a small captive may find that the
expense of defending itself from regulatory oversight is much greater than any
benefits received.
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 more than 50 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 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, wallachinc@gmail.com or visit www.taxadvisorexpert.com.
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.
accounting, financial or any type of advice for any specific individual or
other entity. You should contact an appropriate professional for any such
advice.
While every effort has been made to ensure the accuracy
of this publication, it is not intended to provide legal advice as individual
situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related
topics, please contact the author.
of this publication, it is not intended to provide legal advice as individual
situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related
topics, please contact the author.
Reportable Transactions & 419 Plans Litigation
Specializing in the following services:
 | "IRS audit appeals" | |
| U.S. 'Tax Court' cases | |
| Multinational taxation consulting | |
| Incorporating your business | |
| Recovering losses from insurance companies |
| "Tax shelter analysis" | |
| "Pension plan reviews" & evaluations | |
| "419"& "412i" benefit plan analysis | |
| "419" & "412i plan" remediation | |
| Offshore tax shelter issues | |
| IRS "listed transactions" assistance |
Subscribe to:
Posts (Atom)