Do  You  Know  If  Your "419 or       412  Plan  Is  Compliant?

The  IRS  is  Issuing  Fines  Against  Them  Right Now!

  Resolve  Your  "Tax  Problems"  and  Avoid  Fines  With

The  "Tax  Resolution  Servicesof  "Lance  Wallach"

Call 516-938-5007 Today!






Why would you want to pay the IRS if you don't have to?


Our tax experts will help you with "412(i) litigation", Form "8886" filings, "expert witness" testimony and other "tax advisory services".

Call 516 - 938 - 5007 or email to:
taxadvisorexperts@gmail.com
Nationwide Assistance

“abusive tax shelter help” "tax letter" "irs letter" "irs letters" "irs determination letter" 419e 412i 6707a "form 8886" "listed transactions" "abusive tax 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" “abusive tax shelter help” “irs appeal” “tax resolution services” “insurance expert witnesses” “pension plan audit” “tax preparer penalties” “tax audit defense” “business tax audit” “tax penalty abatement” “irs tax problems” “circular 230” “retirement tax shelters” “health insurance fraud” “employer insurance fraud” “irs trouble” “unfiled tax returns” “unfiled taxes” 419 412i "listed transactions" "form 8886" 6707A "tax shelters" "IRS audit defense" "expert witness irs help" "welfare benefit plan help" "419 plan help" "irs penalty abatement"  "fight the irs" "412i retirement plans" "tax resolution services" "irs problem solvers" "how to avoid irs audit" "abusive tax shelter help"

To "fight the IRS" on your own would be a nightmare and you probably won't win. The most effective way to protect yourself from enormous fines and hours of headaches is to hire an expert to work on your behalf; one who can examine your plan, resolve any issues, and help you through the "IRS audit".

Our team has helped our clients save hundreds of  thousands of dollars by defending them in lawsuits and "IRS audits".   

They are the nation's leading "financial experts" regarding such issues as "419 plan help", "listed transactions", "pension audits", "abusive tax shelters", and "welfare benefit plans" and "tax audit defense" .

If you are deep in the middle of a big problem, or just wondering if you might be at risk, you should call for a FREE 5 minute telephone consultation with the nation's leading "419 plan expert"! Fines are $200,000 and up and the phone  consultation  is FREE so you have nothing to lose and everything to gain.

Contact information

Office: (516) 938-5007
Fax: (516) 938-6330

taxadvisorexperts@gmail.com

Our firm has also been successful in defending life insurance agents and "material advisors" who have participated in the sale of these "employee benefit plans".

Our team of experienced consulting "tax attorneys", CPAs and "insurance plan experts" will help you defend and protect yourself against "IRS penalties", lawsuits and "IRS audits" that resulted from "employee benefit plans" you sold to your clients, including 419e, 412i and other similar "employee benefit plans" that the IRS is targeting as "abusive tax shelters".

Expert Witness Services

  • Litigation Consulting
  • Case Evaluation
  • Evidence Review and Forensic Analysis
  • Research
  • Complaint, Petition, and Response Preparation Assistance
  • Damage Calculations
  • Expert Declarations and Affidavits
  • Exhibits for Settlement Conference, Mediation, and Trial
  • Active Litigation: Rebuttal Witness
  • Deposition, Arbitration, and Trial Testimony
  • Reports

Expert Witness Credentials:

  • Speaker of the Year and member of the AICPA faculty of teaching professionals
  • Frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.
  • Writes extensively about 412(i), 419, and captive insurance plans, Section 79, IRC 6707A, abusive tax shelters, listed and reportable transactions.
  • Speaks at more than ten conventions annually
  • Writes for more than 30 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.
  • Author of Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons
  • Author of Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation.
  • Author of AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.
Late breaking news: Large 419 plan Millennium files for
Bankruptcy.  


Recent court cases and other developments have highlighted serious problems in plans, popularly know 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.  Read more here.

IRS Releases the Dirty Dozen Tax Scams for 2013


IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims. The IRS has 3,000 people working on identity theft related cases — more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

 

Roth IRA, retirement products face crackdown from the Obama administration



To Read More Click Link




Abusive Insurance, Welfare Benefit, and Retirement Plans

 

The A2Z Directory                                        March 2011 

Lance Wallach                        

 

 

The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to be abusive.  Most insurance agents sell these plans.  The IRS is looking to raise money and is not looking to correct plans or help taxpayers. The IRS calls accountants, attorneys, and insurance agents “material advisors” and also fines them the same amount, again unless the client’s participation in the transaction is reported.  An accountant is a material advisor if he signs the return or gives advice and gets paid.  More details can be found on www.irs.gov and vebaplan.org.

Bruce Hink, who has given me written permission to use his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners.  What follows is a story about how the IRS fines him each year for being in what they called a listed transaction.  Listed transactions can be found at www.irs.gov.  Also involved are what the IRS calls abusive plans or what it refers to as substantially similar.  Substantially similar to is very difficult to understand, but the IRS seems to be saying, “If it looks like some other listed transaction, the fines apply.”  Also, I believe that the accountant who signed the tax return and the insurance agent who sold the retirement plan will each be fined as material advisors.  We have received many calls for help from accountants, attorneys, business owners, and insurance agents in similar situations.  Don’t think this will happen to you?  It is happening to a lot of accountants and business owners, because most of theses so-called listed, abusive, or insurance agents are selling substantially similar plans. Recently I came across the case of Hink, a small business owner who is facing thousands in IRS penalties for 2004 and 2005 because of his participation in a section 412(i) plan.  (The penalties were assessed under section 6707A.) 

In 2002 an insurance agent representing a 100-year-old, well-established insurance company suggested the owner start a pension plan.  The owner was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and give an opinion on.  The CPA gave the plan the green light and the plan was started. Contributions were made in 2003.  The plan administrator came out with amendments to the plan, based on new IRS guidelines, in October 2004. The business owner’s insurance agent disappeared in May 2005, before implementing the new guidelines from the administrator with the insurance company.  The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that had not been applied, and no agent.

 

It took six months of making calls to the insurance company to get a new insurance agent assigned.  By then, the IRS had started an examination of the pension plan.  Asking advice from the CPA and a local attorney (who had no previous experience in these cases) made matters worse, with a “big name” law firm being recommended and over ,000 in additional legal fees being billed in three months. To make a long story short, the audit stretched on for over 2 ½ years to examine a 2-year-old pension with four participants and the 8,000 in contributions. During the audit, no funds went to the insurance company, which was awaiting formal IRS approval on restructuring the plan as a traditional defined benefit plan, which the administrator had suggested and the IRS had indicated would be acceptable.In March 2008 the business owner received a private e-mail apology from the IRS agent who headed the examination, saying that her hands were tied and that she used to believe she was correcting problems and helping taxpayers and not hurting people.

 Could you or one of your clients be next?

 

To this point, I have focused, generally, on the horrors of running afoul of the IRS by participating in a listed transaction, which includes various types of transactions and the various fines that can be imposed on business owners and their advisors who participate in, sell, or advice on these transactions.  I happened to use, as an example, someone in a section 412(i) plan, which was deemed to be a listed transaction, pointing out the truly doleful consequences the person has suffered.  Others who fall into this trap, even unwittingly, can suffer the same fate.

Now let’s go into more detail about section 412(i) plans.  This is important because these defined benefit plans are popular and because few people think of retirement plans as tax shelters or listed transactions.  People therefore may get into serious trouble in this area unwittingly, out of ignorance of the law, and, for the same reason, many fail to take necessary and appropriate precautions. The IRS has warned against the section 412(i) defined benefit pension plans, named for the former code section governing them.  It warned against trust arrangements it deems abusive, some of which may be regarded as listed transactions.  Falling into that category can result in taxpayers having to disclose the participation under pain of penalties. Targets also include some retirement plans.

One reason for the harsh treatment of some 412(i) plans is their discrimination in favor of owners and key, highly compensated employees.  Also, the IRS does not consider the promised tax relief proportionate to the economic realities of the transactions.  In general, IRS auditors divide audited plan into those they consider noncompliant and other they consider abusive.  While the alternatives available to the sponsor of noncompliant plan are problematic, it is frequently an option to keep the plan alive in some form while simultaneously hoping to minimize the financial fallout from penalties.

 

The sponsor of an abusive plan can expect to be treated more harshly than participants.  Although in some situation something can be salvaged, the possibility is definitely on the table of having to treat the plan as if it never existed, which of course triggers the full extent of back taxes, penalties, and interest on all contributions that were made – not to mention leaving behind no retirement plan whatsoever. Another plan the IRS is auditing is the section 419 plan.  A few listed transactions concern relatively common employee benefit plans the IRS has deemed tax avoidance schemes or otherwise abusive.  Perhaps some of the most likely to crop up, especially in small-business returns, are the arrangements purporting to allow the deductibility of premiums paid for life insurance under a welfare benefit plan or section 419 plan.  These plans have been sold by most insurance agents and insurance companies.

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, wallachinc@gmail.com or visit www.taxadvisorexperts.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.

 

 


Section 79, Captive Insurance, 419, 412i Plans,

Don't go to Arbitration Sue

 

                                           Lance Wallach                        



Thomas, Francis, Edward, and Dolores Ehlen1("the Ehlens") are employees of Ehlen Floor Covering, Inc. ("Ehlen Floor"). In 2002, Ehlen Floor created a 412(I) employee benefit pension plan, the Ehlen Floor Coverings Retirement Plan ("the Plan"), with the help of advisors and administrators. IPS, a corporation specializing in pension plan design and administration for small businesses, took over as the Plan administrator at the start of 2003. As part of the commencement of IPS's services, Edward Ehlen, in his capacity as president of Ehlen Floor, signed an Arbitration Addendum ("AA") attached to an Administrative Services Agreement ("the Agreement") between IPS and Ehlen Floor. The AA called for arbitration of "any claim arising out of the rendition or lack of rendition of services under [the] [A]greement." The Agreement provided a list of available services that IPS could provide, such as performing annual reviews of the Plan, making amendments, and preparing annual report forms. The Agreement also stated that Ehlen Floor would indicate in Section VI of the Agreement which of the available services it desired for IPS to actually perform. There is no Section VI in the Agreement, nor is there any testimony or evidence that plaintiffs ever viewed a Section VI of the Agreement.

Shortly after IPS stepped in as administrator of the Plan, it became aware that the Plan was not in compliance with several Internal Revenue Service ("IRS") rules and regulations. IPS contends that it drafted an amendment to correct these flaws, but the amendment was never officially adopted. In 2004, the IRS promulgated new rules explaining that it would consider 412(i) plans with beneficiary payout limitations to be listed transactions2, possibly subject to serious penalties. The rule required any plans that could be considered listed transactions to file Form 8886 to avoid potential penalties. IPS drafted another amendment to the Plan after determining that the Plan would likely be classified as a listed transaction under the new rules. Ehlen Floor was not informed about the pre-rule tax problems, the existence of the new rule, the additional filing requirements that the new rule imposed, or the drafting of the new amendment. The IRS instigated an audit on March 6, 2006, found the Plan to be non-compliant, and ultimately assessed significant penalties against Ehlen Floor.

In August 2007, plaintiffs filed a complaint in state court against a number of parties involved with the creation and initial administration of the Plan, asserting claims of negligence, fraudulent and negligent misrepresentation, negligent supervision, breaches of fiduciary duties, and unfair and deceptive trade practices. The case was removed to federal court on the basis of preemption under ERISA. In May 2009, as requested by the court, plaintiffs recast their complaints as federal matters in their Second Amended Complaint, but plaintiffs contested the removal and argued against federal jurisdiction. IPS was added as a defendant in the Second Amended Complaint. IPS then moved to compel arbitration of the dispute, claiming that the terms of the AA govern the matter. The district court denied the motion. IPS appeals; plaintiffs cross-appeal to challenge the existence of federal jurisdiction.

II. STANDARD

 Innovative Pension Strategies, Inc. ("IPS") appeals the district court's denial of its motion to compel arbitration and stay plaintiffs' claims against it. Plaintiffs cross-appeal, disputing the preemption of their claims under the Employment Retirement Income Security Act ("ERISA") and alleging a lack of federal jurisdiction. We find that jurisdiction is proper and affirm the district court's denial of IPS's motion to compel arbitration.

 

We therefore affirm the district court's denial of IPS's motion to compel arbitration and to stay plaintiffs' claims against it.


Lance Wallach can be reached at: WallachInc@gmail.com

For more information, please visit www.taxadvisorexperts.org 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, wallachinc@gmail.com or visit www.taxadvisorexperts.com.

 

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

 

 

 

 


Breaking News: Don't Become A Material 
Advisor


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 
listed transaction.

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.



California Broker, June 2011


Employee Retirement Plans

By Lance Wallach

412i, 419, Captive Insurance and Section 79 Plans; Buyer Beware

The IRS has been attacking all 419 welfare benefit plans, many 412i retirement plans, captive insurance plans with life insurance in them, and Section 79 plans.  IRS is aggressively auditing various plans and calling them “listed transactions,” “abusive tax shelters,” or “reportable transactions,” participation in any of which must be disclosed to the Service.  The result has been IRS audits, disallowances, and huge fines for not properly reporting under IRC 6707A.  

In a recent tax court case, Curico 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.  It was substantially similar to the transaction described in IRS Notice 95-34.  A subsequent case, McGehee Family Clinic, largely followed Curico, though it was technically decided on other grounds.  The parties stipulated to be bound by Curico regarding whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible.  Curico 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 issues.  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. Click here to read full article.

Retirement Today                                            Sept 2011                                                                                                                                                                                           

Participate in a 419 or 412i Plan or Other Abusive Tax Shelter You could be fined a large amount of Money

Lance Wallach

 

Did you get a letter from the IRS threatening to impose this fine? If you haven’t already, you still may. Consider yourself lucky if you have not because this means that you have more time to straighten this situation out. Do not wait for this letter to come from the IRS before you call an expert to help you. Even if you have been audited already, you could still get the letter and/or fine. One has nothing to do with the other, and once the fine has been imposed, it is not able to be appealed.

Many businesses that participated in a 412i retirement plan or the IRS is auditing a 419-welfare benefit plan. Many of these plans were not in compliance with the law and are considered abusive tax shelters. Many business owners are not even aware that the welfare benefit plan or retirement plan that they are participating in may be an abusive tax shelter and that they are in serious jeopardy of huge IRS penalties for each year that they have been in this type of plan.

Insurance companies, CPAs, sellers of these 419 welfare benefit plans or 412i retirement plans, as well as anyone that gave tax advice or recommended participation in one or more of these plans, also known as a material advisor, is in danger of being sued, fined by the IRS, or both.

There is help available if you think you may be involved with one of these 419 welfare benefit plans, 412i retirement plans, or any abusive tax shelter. IRS penalty abatement is an option if you act now. Feel free to contact me for more information.


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, 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.

 

 

 

Former Oregon Area Residents Sentenced on Tax Evasion Charges

On November 4, 2010, in Eugene, Ore., three former Bend area residents were sentenced to prison for conspiracy, tax evasion, and structuring. Jerry Miller, of Redmond, was sentenced to 33 months in prison, three years of supervised release, and was ordered to pay over $200,000 in restitution to the Internal Revenue Service (IRS). Miller was previously found guilty of five counts of income tax evasion and one count of conspiracy. William Cardwell, of Carlton, was sentenced to 12 months and a day of in prison, three years of supervised release, and was ordered to pay $197,594 in restitution to the IRS. His wife, Jennifer Cardwell, was sentenced to 5 months in prison, to be followed by five months of home detention, and was ordered to pay $114,379 in restitution to the IRS. William Cardwell pleaded guilty to one count of tax evasion and to one count of structuring currency transactions to avoid reporting requirements. Jennifer Cardwell pleaded guilty to one count of tax evasion. According to evidence presented at Miller's trial, between 1995 and 2005, Miller and the Cardwells worked at Business Administrative Services (BAS), a company owned and operated by the Cardwells in Bend, Oregon. BAS was, in part, a payroll tax company. In 1995 and 1996, Miller and the Cardwells began using abusive trusts to evade the assessment and collection of their federal income taxes. They further attempted to thwart the IRS’s efforts to assess and collect federal income taxes by entering into a “Professional Services Agreement” with BAS, whereby Miller and William Cardwell agreed to donate their time to BAS, and in return, BAS agreed to pay their personal expenses. Miller and the Cardwells used BAS’s corporate bank account to pay many of their personal expenses. Additionally, Miller and the Cardwells used BAS to obtain preloaded ATM cards that were also used to pay personal expenses. In October 2005, Miller and the Cardwells also filed false federal income tax returns for 1998-2004.

419 Welfare Benefit Plans Are Current IRS Targets

Every smart business owner wants to maximize profits and minimize taxes. Tax planning to minimize taxes is simply a sound business practice. However, small business owners should beware of “too good to be true” sales pitches from the local insurance agent or CPA because certain tax-savings options can actually generate more – and more expensive — tax issues.

A business owner wants legitimate tax planning ideas. One solution sometimes offered today is a 419 Plan.The local insurance agent, or the company’s CPA who may have an insurance sales license, may suggest that the 419 Welfare Benefit Plan
  will provide shelter from taxes today, the costs of the plan are tax deductible and the plan will provide tax free benefits for the owner when he or she is ready to retire. The concept seems too good to be true. Watch out because the IRS is watching, and it often says that the plan is too good to be true.

A 419 Welfare Benefit Plan is generally a plan set up in the form of a trust to provide certain benefits to the employees of a company. You will notice that the term trust is used because the large whole life insurance policies that the owner is instructed to buy go into a trust where neither the company nor the business owner actually owns them. The trust owns the policies.

The insurance agent or CPA wants you to set up a 419(e) plan because you are agreeing to buy high dollar life insurance with premiums payable until you retire. That can generate fees of up to 125% of the first year premium as a commission – that’s right, you read that correctly – 125%.

The plan is sold as a win-win for everyone. It is for the insurance company because it locks the business owner into long-term, expensive insurance. It is for the trust administrator (remember: the insurance policies must be put into a trust to make the plan work) because the business owner has to pay a fee every year to administer the plan. But for the business owner? Maybe not so much!

The big sales pitch often is that the contributions are tax deductible to the business and the business can exclude employees. Moreover, the seller promises that the big insurance policies that is paid for with tax free money can be cashed out or transferred from the trust to the business owner at some later date without paying taxes. It is all so easy: no taxes in and no taxes out. Good right?

Unfortunately, it is often too good to be true. The IRS has been actively attacking such 419 Welfare Benefit Plans as TAX SHELTERS. If a transaction is classified as a tax shelter then the salesperson and your CPA are supposed to tell you to file an 8886 form which highlights tax shelters to the IRS. Think of it as a beacon so that the IRS knows who to come pursue for taxes, penalties, interest and listed transaction charges.

The IRS focus on 419(e) plans came up in a case identified as Curcio v. Commissioner of Internal Revenue, T.C. Memo 2010-115, which can be found at http://www.ustaxcourt.gov/InOpHistoric/curcio.TCM.WPD.pdf. The end result was a financial disaster for the company that took the ordinary business deductions for the plan and the individual taxpayers that also took deductions on their personal taxes.

If something goes wrong on one of these plans (as it often does) who does the business owner look to? The insurance company will claim in defense that it simply sold insurance. The agent or the CPA will claim that it was the responsibility of the third party administrator (TPA) to make sure that the plan was solid and lawful. The TPA will claim that the business owner is not the owner of the product and cannot sue because it was in a trust. The business owner is often left facing the IRS on his or her own while paying other professionals to correct the tax situation.

If you are a business person being offered a 419 Plan as a part of financial and tax planning, then talk to your CPA (so long as he or she is not selling the product) or your trusted attorney to determine if this is a proper product and plan for you and your company.

This article is a good read. It forgets to discuss that IRS will audit every 419 plans and desallow the deduction. Then the fine you for not properly filing and telling on yourself.

 


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.