Showing posts with label insurance. Show all posts
Showing posts with label insurance. Show all posts
Captive Insurance
Just a few years ago, captive insurance companies were a hot news item in the arcane world of abusive tax shelters. Sleazy promoters were signing up small businesses in droves. If you created a cell captive as a property and casualty loss management tool, it’s probably legitimate. If you “bought” an off the shelf captive from a promoter who promised tax savings, there is a good chance you own an abusive tax shelter.
After the initial wave of fraud and audits, many of the bad promoters went away. New reports suggest that captives are again making a comeback. And with the next generation of captives will come the inevitable fraudsters looking to catch a free ride on the resurgent popularity of these products.
The new wave of captive insurance companies are sometimes called cell captive insurance companies or “group captives.” We have also seen them called rent-a-captive, segregated account companies, segregated portfolio companies and incorporated protected cell companies. Whatever they are called, if properly set up they can be completely legal and valuable risk management tool.
The IRS issued a bulletin in 2008 to give guidance on these products including whether premiums can be deductible as insurance costs. The IRS says there must be adequate risk shifting and distribution to be considered “insurance.”
The scam promotions typically offer to shelter a large sum of money by calling it an insurance premium. The premium is usually the same dollar amount as the deduction you seek. The promoter offers “insurance” on a highly improbable risk. Hurricane insurance in Nebraska, anyone? Magically, you get a big deduction and in a few years you are promised the ability to get back your money in the form of a “premium refund” or dividend. Sound familiar? You probably purchased an abusive tax shelter.
If you think that you have one of these products, seek legal help immediately. First, the premiums in bogus captive insurance companies or cell captives are not deductible. That has significant tax implications and likely involves big civil penalties too.
Because the IRS views many of these schemes as abusive tax shelters, there are special penalties that apply. If the IRS finds that your captive insurance resembles an illegal welfare benefit scheme (sometimes called 419 or 412 plans), your plan might be considered a listed transaction subject to penalties of $100,000 or more per year.
Abusive tax shelters can also be criminally prosecuted.
Another danger is that in many of the cell captive frauds, the money is simply not there when you go to cancel the policy and seek a refund of premiums.
It’s not always promoters who sell the bad plans. We know of otherwise honest insurance agents and even accountants who were roped into selling these products. Many promoters lure agents into their scheme by offering legitimate looking “legal” opinion letters and slick marketing materials. If an agent or accountant sold or recommended the plan, you may still be able to recover your damages if the promoter – and your money – is long gone. (Insurance agents love these plans because they usually pay above average commissions – another red flag.)
According to a recent story in Captive Review, Bahamian cell captives have “risen from extinction” and are making a dramatic resurgence. Cell captives are currently offered in Guernsey, Jersey, Malta, Gibraltar, Isle of Man, Bahamas, Bermuda, the British Virgin Islands, Anguilla and Dubai. In the United States, they may be offered in Nevada, Washington, Montana, Hawaii, Kentucky, South Carolina and Oklahoma. Because they can be created in certain states doesn’t mean they pass IRS muster, however.
Whatever you do, don’t wait until the IRS finds you or until you discover that your premium refund isn’t coming. If you have questions about your cell captive or captive insurance company, give us a call. We also represent owners of phony welfare benefit plans, 419 and 412 plans. Our tax and fraud lawyers can help you determine if your cell captive or other plan is legitimate and if not, unwind the transaction and get back your hard earned money.
IRS Attacks Captive Insurance, Section79, 412I, 419 Plans
Lance Wallach Newsletter June 2011
The IRS has increased its attacks on listed transactions , abusive tax shelters and similar plans. These plans go by various names and are primarily sold by insurance agents to small business owners and professionals. Accountants who sign tax returns and get paid a certain amount of money are called “material advisors”. Their fines are a minimum of a $100,000. If an accountant has a client in a plan and his client signs the tax return even if the after a client has stopped making contributions both of them must file under IRS code section 6707A to avoid the large fines. In short, both the accountant and the business owner must report on themselves to avoid large IRS fines. Not only must they report on themselves, but they must also fill out the forms exactly right.
I have received hundreds of phone calls whereby the accountant and or business owner filed under 6707A and were still fined. The directions for the filing are vague and if the forms are filed after the fact the directions are almost impossible to follow. Many times the plan promoter will assist in filing the forms. I have never seen the forms done properly under that circumstance. I know of only two people who are excellent at refilling forms or filing them properly the first time. I have not yet seen forms filed by business owners and or accountants that were done properly the first time, except for the two people that I know of; who have years of experience in these matters.
In a recent Tax Court case, Curcio v. Commissioner (TC Memo 2010-115), the Tax Court ruled that an investment in an employee welfare benefit plan marketed under the 419 Plan was a listed transaction. Taxpayers and their representatives should be aware that the Service has disallowed deductions for contributions to these arrangements and other schemes that are substantially similar to them. The IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers and others who sell them. Some of these plans include defined benefit retirement plans, 419 welfare benefit plans, 412(i) plans, captive insurance, Section 79 plans, IRA s, or even 401(k) plans with life insurance.
In order to fully grasp the severity of the situation, one must have an understanding of Notice 95-34, which was issued because of trust arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits, the questionable tax deductions claimed and often disallowed under these arrangements, and all of the notices, revenue rulings, and other guidance that the Service has issued in this area in the intervening years.
In general, contributions to a welfare benefit fund are not fully deductible when paid. Sections 419 and 419A impose strict limits on the amount of tax deductible pre-funding permitted for contributions to a welfare benefit fund.
In rendering its decision in McGehee Family Clinic, the Tax Court heavily cited Curcio v. Commissioner, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The 419 Plan owned the insurance contracts. The excessive cost of providing death benefits was a reason for the court’s finding in Curcio that tax deductions had been properly disallowed.
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. The IRS also assessed tax deficiencies and the enhanced thirty percent penalties, totaling almost $21,000 against the clinic, and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.
MORE YOU SHOULD KNOW
In recent years, some Section 412(i) plans have been funded with life insurance using face amounts in excess of the qualified death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan. Effective February 13, 2004, the purchase of excessive life insurance in any plan renders that particular plan a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance.
A 412(i) plan is not in and of itself a listed transaction. However, the IRS does have a task force auditing 412(i) plans.
An employer has not necessarily engaged in a listed transaction simply by virtue of participation in a Section 412(i) plan.
Simply because a 412(i) plan was audited and sanctioned for certain items does not necessarily mean that the plan is a listed transaction. Some Section 412(i) plans have been audited and sanctioned for issues not related to listed transactions.
Companies should carefully evaluate proposed investments in plans such as the 419 Plan. The claimed deductions will be disallowed, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34, to wit: if the transaction is a listed transaction and Form 8886 is either not filed at all or is not properly filed. In addition, under IRC Section 6707A, the IRS fines participants a large amount of money for not properly disclosing their participation in listed or reportable transactions, an issue that was not before the court in either Curcio or McGehee. A listed transaction is one which has been specifically designated as such by the Service in a written pronouncement that is available to the general public , or which is substantially similar to such a transaction; a reportable transaction, quite simply, is any transaction having the potential for tax avoidance or evasion. The disclosure needs to be made for every year that a participant is in the plan. The forms need to be properly filed even for years when no contribution was made. I have received numerous telephone calls from participants who did disclose and were still fined because the forms were not properly prepared. A plan administrator told me that he helped hundreds of his participants to file, and they still all received very large IRs fines for not properly preparing the forms.Do not follow the plan promoter’s directions as to how to file Form 8886. If you did, immediately re-file the forms and use someone who has extensive experience preparing the forms. I would not use someone to redo or to do the forms unless he or she has prepared many others and has had no, or at most very little trouble with the IRS on this issue.
The IRS has been attacking all Section 419 welfare benefit plans, many 412(i) retirement plans, captive insurance plans with life insurance inside of them, and Section 79 plans. I have received hundreds of telephone calls from accountants, business owners, and others who are being attacked by the IRS because of their participation in these plans. The IRS calls accountants who sign tax returns and/or meet a certain income threshold material advisors. They also have a disclosure obligation, and failure to meet it results in fines of $100,000 for individuals and $200,000 for corporations.
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 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 AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and his side has never lost a case. Visit www.Attorneys-USA.org for more on this subject.
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.
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.
Get Sued
June 2011
The IRS is cracking down on what it considers to be abusive tax shelters. Many of them are being marketed to small business owners by insurance professionals, financial planners and even accountants and attorneys. I speak at numerous conventions, for both business owners and accountants. And after I speak, I am always approached by many people who have questions about tax reduction plans that they have heard about. Below are the most common 419 tax reduction insurance plans.
These come in various versions, and most of them have or will get the participant audited and the salesman sued. They purportedly allow the business owner to make a large tax-deductible contribution, and some or all of the contribution pays for a life insurance product. The IRS has been disallowing most versions of these plans for years, yet they continue to be sold. After everyone gets into trouble and the insurance agents get sued, the promoters of the abusive versions sometimes change the name of their company and call the plan something else. The insurance companies whose policies are sold are legitimate companies. What usually is not legitimate is the way that most of the plans are operated. There can also be a $200,000 IRS fine facing the insurance agent who sold the plan if Form 8918 has not been properly filed. I've reviewed hundreds of these forms for agents and have yet to see one that was filled out correctly.
The IRS is cracking down on what it considers to be abusive tax shelters. Many of them are being marketed to small business owners by insurance professionals, financial planners and even accountants and attorneys. I speak at numerous conventions, for both business owners and accountants. And after I speak, I am always approached by many people who have questions about tax reduction plans that they have heard about. Below are the most common 419 tax reduction insurance plans.
These come in various versions, and most of them have or will get the participant audited and the salesman sued. They purportedly allow the business owner to make a large tax-deductible contribution, and some or all of the contribution pays for a life insurance product. The IRS has been disallowing most versions of these plans for years, yet they continue to be sold. After everyone gets into trouble and the insurance agents get sued, the promoters of the abusive versions sometimes change the name of their company and call the plan something else. The insurance companies whose policies are sold are legitimate companies. What usually is not legitimate is the way that most of the plans are operated. There can also be a $200,000 IRS fine facing the insurance agent who sold the plan if Form 8918 has not been properly filed. I've reviewed hundreds of these forms for agents and have yet to see one that was filled out correctly.
When the IRS audits a participant in one of these plans, the tax deductions are lost. There is also the interest and large penalties to consider. The business owner can also be facing a $200,000-a-year fine if he did not properly file Form 8886. Most of these forms have been filled out improperly. In my talks with the IRS, I was told that the IRS considers not filling out Form 8886 properly almost the same as not filing at all.
412(i) retirement plans
The IRS has been auditing participants in these types of retirement plans. While there is generally nothing wrong with many of the newer plans, the IRS considered most of the older abusive plans. Forms 8918 and 8886 are also required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I have not lost one of them. If you sold one or more of these plans, get someone who really knows what they are doing to help you immediately. Many advisors will take your money and claim to be able to help you. Make sure they have experience helping agents that have sold these types of plans. Don't let them learn on the job, with your career and money at stake.
412(i) retirement plans
The IRS has been auditing participants in these types of retirement plans. While there is generally nothing wrong with many of the newer plans, the IRS considered most of the older abusive plans. Forms 8918 and 8886 are also required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and I have not lost one of them. If you sold one or more of these plans, get someone who really knows what they are doing to help you immediately. Many advisors will take your money and claim to be able to help you. Make sure they have experience helping agents that have sold these types of plans. Don't let them learn on the job, with your career and money at stake.
Do not wait for IRS to come and get you, or for your client to sue you. Time is of the essence. Most insurance professionals need help to correct their improperly completed Form 8918 or to fill it out properly in the first place. If you have not previously filled out the form it is late, and therefore you should immediately seek assistance. There are plenty of legitimate tax reduction insurance plans out there. Just make sure that you know the history of the people with whom you conduct business.
Remember, if something looks too good to be true, it usually is. Be careful.
Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.com.
The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Remember, if something looks too good to be true, it usually is. Be careful.
Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.com.
The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Reportable Transactions- Help from the Experts
The IRS might be ready to levy a $50,000 tax penalty on your
business for not properly reporting certain transactions to the IRS.
Learn more from the leading experts on IRS Reportable
Transactions, Listed Transactions, code Sec 79 plans and other retirement &
benefit plans for which the IRS is assessing large penalties for not filing the
required IRS reporting forms by visiting our blog and website
Lance Wallach, National Society of Accountants Speaker of
the Year and member of the AICPA faculty of teaching professionals, is a
frequent speaker on retirement plans, financial and estate planning, and
abusive tax shelters. He writes about 412(i), 419, and captive insurance
plans. He speaks at more than ten conventions annually, writes for over fifty
publications, is quoted regularly in the press and has been featured on
television and radio financial talk shows including NBC, National 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 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.taxlibrary.us
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.
FBAR_ Problems_Amnesty
If you have unreported foreign accounts of more than $10,000 and unreported income, you better come clean with the IRS or you could be in a heap of tax trouble — the type that can cost you hundreds of thousands of dollars and even land you in jail.
The willful failure to file the FBAR report or maintain records of your
foreign accounts can potentially lead to a ten-year prison sentence
foreign accounts can potentially lead to a ten-year prison sentence
and
fines of up to $500,000. This criminal penalty applies to all US citizens
pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may
also apply to persons living in the United States who are not citizens.
If you fail to answer the question truthfully on schedule B of your Form
1040 which asks if you “have an interest in or a signature or other
authority over a financial account in a foreign country”, then your false
statement might be deemed a criminal offense by the IRS per the sections
mentioned above if other surrounding facts and circumstances apply.
fines of up to $500,000. This criminal penalty applies to all US citizens
pursuant to 31U.S.C Section S322B and 31 C.F.R. Section 103.S.9.C It may
also apply to persons living in the United States who are not citizens.
If you fail to answer the question truthfully on schedule B of your Form
1040 which asks if you “have an interest in or a signature or other
authority over a financial account in a foreign country”, then your false
statement might be deemed a criminal offense by the IRS per the sections
mentioned above if other surrounding facts and circumstances apply.
If you filed your amnesty request you have now admitted to committing a tax crime. Now the hard part comes. Should you opt out to get a better result?
If you filed your amnesty forms you have now admitted to a criminal offense. What is the best strategy to utilize to deal with the IRS to minimize the chance for a criminal prosecution? What is the best strategy to deal with the IRS NOW to minimize your fines? YOU need answers now.
Our office is headed by a former international tax IRS agent
with 37 years experience as a CPA and Associate Professor of accounting.
Call our office immediately for a free five-minute consultation so you can
avoid the dire circumstances described above and deal with the other
associated problems.
Has the IRS contacted you to charge you with a crime yet? If not you may have time to do something.
________Lancewallach.com__lawyer4audits.com__taxadvisorexpert.com_________________________
________Lancewallach.com__lawyer4audits.com__taxadvisorexpert.com_________________________
IRS: Disclose Offshore Accounts or Go to Jail
Brian M
That's pretty much the headline from a CNBC article on Friday. And it's true.
In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.
U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.
So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.
Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.
Those that don't comply face prison and loss of 50% of their highest account value.
So what is the risk of getting caught? We think it is quite high.
Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.
The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.
Still not convinced? The IRS paid its first award under the new whistle blower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.
The world suddenly got much smaller.
In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.
U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.
So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.
Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.
Those that don't comply face prison and loss of 50% of their highest account value.
So what is the risk of getting caught? We think it is quite high.
Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.
The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.
Still not convinced? The IRS paid its first award under the new whistle blower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.
The world suddenly got much smaller.
Lance Wallach comment: I do not believe all of the above, but if you have money overseas you should file for amnesty and then probably opt-out. That is a special way to get to IRS appeals where you can make a deal. You probably should get help from an ex IRS agent who is a CPA and has done lots of these.
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.
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