"
Lance Wallach is the nation's leading "financial expert" when it comes to 412i and "419 plans""and can assist with all other "IRS problems" and "tax trouble" you may be facing.  Mr. Wallach provides "expert witness testimony" in court cases involving "tax shelters" and "tax audit defense". "Lance Wallach's side has never lost a case.


Mr. Wallach's team of highly experienced "tax attorneys", CPAs and ex IRS agents have helped his clients save hundreds of thousands of dollars by successfully defending them from "IRS penalties", "IRS audits", and lawsuits.

"Lance Wallach
Managing Director

Contact "Lance" and his expert team today at:

516-938-5007 (Nationwide Assistance)

for more information about 412 and "419 plan help", captive insurance and Section 79 plans, and to learn more about the "tax resolution services" Lance and his expert team provide.

The "Lance Wallach" advantage is credibility, experience and trust!

Many advisory firms offer "financial planning" and "investment services", but the difference is that "Lance Wallach" wrote the books on life insurance as well as "financial and estate planning" that the other consultants learned from!

If you want to sleep soundly at night, don't go to the students for your financial answers, go to the one who teaches them - "Lance Wallach"!

For the past 25 years, successful businesses and individuals have turned to "Lance Wallach" and his team for assistance, and they are glad they did!



 
The "Tax Resolution" Offices of "Lance Wallach"
5 1 6 - 9 3 8 - 5 0 0 7    Nationwide Assistance
WallachInc@gmail.com


You Landed Here For A Reason
Don't Ignore Your Good Fortune

"

If you landed on this page while searching for information, there is a very good chance that your financial future is in jeopardy because of what the IRS now considers abusive tax shelters.

You are almost certainly looking at:
IRS Penalties, Fraud, Scams, Fines, and Audits

These days people can’t afford to pay
"IRS fines"of up to $200,000 for each year they were in a
benefit or "retirement plan" they THOUGHT was working properly. If you are in a 412i "retirement plan" or a "419 welfare benefit plan" and got a "letter from the IRS", your money may be in serious trouble and you could be put out of business - permanently. You need to act IMMEDIATELY if you want to save your money, your business, or recover what has already been lost!

If you participated in a 419e plan, 412i plan, Section 79, listed or reportable transaction you have very specific things to do to save you from IRS fines and penalties. We know what those things are and we know how to get it all done. We can help anyone with problems resulting from being in a listed transaction or a reportable transaction.

HELP IS AVAILABLE!  Call 516-938-5007 today (services provided nationwide!) for a FREE phone consultation and find out right away if you are in what the IRS has labeled an "abusive tax shelter", listed or reportable transaction. Once you know, then you can act. Once you act, you can avoid the serious "IRS fines and penalties" that could put you out of business and ruin your life

Many participants don't even know that they are in an "abusive tax shelter" until they get huge  "IRS fines and penalties which are not able to be appealed.

There’s lots of information here to help you decide what path to take. Or, just call us at 516-938-5007 for a free consultation and let our team of experts help you find the best solution. 

We are the experts you need regarding:  

  • "SADI Trust"
  • "Professional Benefits Trust" PBI
  • "Sea Nine Veba"
  •   Bisys
  •   The "Beta Plan"
  •   The "Millennium
  •   Niche
  •   The "Ridge Plan"
  •   The "Grist Mill Trust"
  •   The "Compass Welfare Benefit Plan"
  • "Section 79 Plans"
  • "Captive Insurance"
  •   and other similar "412i retirement plans" and "419 welfare benefit plans "lance wallach" “abusive tax shelter audit” "tax letter" "irs


h







Offshore International Today                                         Jan 2012

 

IRS Offshore Voluntary Disclosure Program Reopens

 


By Lance Wallach, CLU, CHFC

Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness


 

 

Today, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.  Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs.

 

The Offshore Voluntary Disclosure Program (OVDP) was reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will remain open indefinitely until otherwise announced.

 

Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS.  According to Lance, it requires years of experience to obtain a good result from the program.

He suggests using a CPA-certified, ex-IRS agent with lots of international tax experience. While this is not a requirement to file under the program, Lance has heard many horror stories from people who have tried to file by themselves or who have used inexperienced accountants.

 

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

 

The new program is similar to the 2011 program in many ways, but it has a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

 

“As we've said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

 

The third offshore effort accompanies another announcement that Shulman made today, that the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program.  That figure reflects closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

 

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who come in after the closing of the 2011 program will be able to be treated under the provisions of the new OVDP program.

 

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

 

The new program’s penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or the value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

 

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

 

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

 

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. 

 


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 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 other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

News!!!
Update your estate planning documents.

Not old or wealthy enough for estate planning? Think again. Estate planning is about more than avoiding estate taxes on multimillion dollar estates. Contact Lance Wallach


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
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 
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 welfare benefit 
plan, by denominating it a 
listed transaction.

The McGehee Family Clinic enrolled in the  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.

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 , 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.



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  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. Read more here!


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. 

 

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.

 

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.


Offshore International Today                                          Aug 2011                                                                              

FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS

By: Lance Wallach

 

You may want to think about participation in the IRS’ offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS?  Some clients think they are too small to be prosecuted. They are wrong.

To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo. He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That’s it.

But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.

“So, to save a whopping $40,624 in taxes, this guy risked a felony conviction and prison time, not to mention steep penalties that could very easily eat up the entire $90,000, and also his criminal and civil defense costs.

 The smart taxpayers are the ones coming forward and not having to look over their shoulders for the next 10 years.

Time is running out. The tax amnesty runs through August but it takes at least days to jump through all the hoops. We will also fight hard to reduce the penalties down even more. Remember, the IRS can go as low as 5%. Don’t want this to happen to you? Visit www.taxadvisorexpert.com today!

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.


The Team Approach to Tax, Financial and Estate Planning.

 

by Lance Wallach

 

 

CPAs are the best and most qualified professionals when it comes to serving their clients needs, but they need to know when and how to coordinate with other experts.

 

Over the last twenty years we have worked with thousands of practitioners who have decided to add financial services to their practices. They do it for a variety of reasons, but the most common are as follows:

 

 

*They don’t want to refer their client elsewhere when they request financial services.

 

* They want to remain competitive.

 

*They want to diversify and increase their revenue as opposed to depending solely on tax and accounting revenue.

Our tax resolution offices have received calls regarding the following companies or plans: CJA, CJA and Associates




IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams

By Lance Wallach                                                                                          June 2011

 

The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions.

 

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 name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible. Curcio 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.

 

In order to fully grasp the severity of the situation, one must have an understanding of Notice 95-34, which was issued in response to trust arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits. The promoters of these arrangements claimed that all employer contributions were tax-deductible when paid, by relying on the 10-or-more-employer exemption from the IRC § 419 limits. It was claimed that permissible tax deductions were unlimited in amount.

 

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 prefunding permitted for contributions to a welfare benefit fund. Section 419A(F)(6) provides an exemption from Section 419 and Section 419A for certain “10-or-more employers” welfare benefit funds. In general, for this exemption to apply, the fund must have more than one contributing employer, of which no single employer can contribute more than 10% of the total contributions, and the plan must not be experience-rated with respect to individual employers.

 

According to the Notice, these arrangements typically involve an investment in variable life or universal life insurance contracts on the lives of the covered employees. The problem is that the employer contributions are large relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement, and the trust administrator may obtain cash to pay benefits other than death benefits, by such means as cashing in or withdrawing the cash value of the insurance policies. The plans are also often designed so that a particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the economic realities of the arrangements.

 

Benistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The benefits of enrollment listed in its advertising packet included: 

  • Virtually unlimited deductions for the employer;
  • Contributions could vary from year to year;
  • Benefits could be provided to one or more key executives on a selective basis;
  • No need to provide benefits to rank-and-file employees;
  • Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;
  • Funds inside the plan would accumulate tax-free;
  • Beneficiaries could receive death proceeds free of both income tax and estate tax;
  • The program could be arranged for tax-free distribution at a later date;
  • Funds in the plan were secure from the hands of creditors.

The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times. In rendering its decision the court heavily cited Curcio, 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 Benistar Plan owned the insurance contracts.

 

Following Curcio, as the Court has stipulated, the Court held that the contributions to Benistar were not deductible under section 162(a) because participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.

 

The McGehee Family Clinic had 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. The IRS also assessed tax deficiencies and the enhanced 30% penalty 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 maximum 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 is considered 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 in and of itself is not a listed transaction; however, the IRS has a task force auditing 412i plans.
  • An employer has not engaged in a listed transaction simply because it is a 412(i) plan.
  • Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan engaged in a listed transaction. Some 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 Benistar Plan. The claimed deductions will not be available, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34. In addition, under IRC 6707A, IRS fines participants a large amount of money for not properly disclosing their participation in listed, reportable or similar transactions; an issue that was not before the Tax Court in either Curcio or McGehee. The disclosure needs to be made for every year the participant is in a plan. The forms need to be properly filed even for years that no contributions are made. I have received numerous calls from participants who did disclose and still got fined because the forms were not filled in properly. A plan administrator told me that he assisted hundreds of his participants file forms, and they still all received very large IRS fines for not properly filling in the forms.

 

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.

 

 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, lawallach@aol.com or visit www.vebaplan.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.

 

 

                            Should you File, and then Opt Out?

 

Announced February 8, 2011, the IRS 2011 Offshore Voluntary Disclosure Initiative (OVDI) program is a welcome but conditional amnesty allowing taxpayers with foreign accounts to come clean and get into compliance with the IRS.  The program runs through Sept.  9, 2011.

 

There’s been discussion of “opting out” of the program to take your chances in audit, but it’s a topic fraught with danger.  Now, however, there is guidance about opting out of the program that makes much of it transparent. Because of this late date it is recommended that you properly file FBARs and the 90-day request for amnesty extension. This is the first important step. If the forms are not done properly, you will have extensive problems and will not have to think about opting out. If your forms are properly done and filed, then your situation should be discussed with someone who is experienced in these matters.

 

Under the OVDI, taxpayers are subject to a penalty of 25 percent of the highest aggregate account balance on their undisclosed account(s) between 2003 and 2010.  If the value was less than $75,000 at all times during those years, the penalty is only 12.5 percent.

These account balance penalties are in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties.  Plus, participants are required to pay taxes and interest on any monies (such as interest income on foreign accounts) they previously failed to report.  Finally, they must pay an accuracy-related penalty equal to 20 percent of the underpayment of tax, plus interest.

Opting out of the program can make sense for some, though it involves taking your chances with an IRS examination. Someone should represent you with extensive experience in this. We always suggest they should at least be a CPA with years of experience in international tax. It’s even better if you use one that was with the international tax division of the IRS for a number of years. The IRS has published a separate guide detailing the rules and procedures for opting out. 

Here are some of the rules: 

1.      IRS Summary.  The IRS employee who has been handling your case summarizes it, agreeing or disagreeing with your view of penalties, and listing how extensive an audit he or she recommends.

2.      Program Status Report.  Before you can opt out, the IRS sends a letter reporting on the status of your disclosure and what you still must submit.  If you’ve given enough data, the IRS will calculate what you would owe under the OVDI.  You should provide any missing items within 30 days.

3.      Taxpayer Submission.  Within 20 days, the taxpayer opts out in writing and makes a written case what penalties should apply and why. 

4.      Central Committee.  A Committee of IRS Managers reviews the summary and decides how extensive an audit to conduct.  The IRS says “the taxpayer is not to be punished (or rewarded) for opting out.”   The Committee also decides whether to assign your case for a normal civil audit or to assign it for a criminal exam. 

5.      Written Warning.  The IRS sends another letter explaining that opting out must be in writing and is irrevocable.  You have 20 days thereafter to opt out in writing.

6.      Interview?  Some audits will include taxpayer interviews.

Bottom Line?  The “opt out” procedure is helpful but still a bit daunting.  If you are considering it, make sure you get some solid advice from an experienced person who, in my opinion, should have worked for the IRS and is a CPA about the nature of your case. This is just one of the many options that should be discussed with your advisor. There are many other strategies that you may want to utilize. Your advisor should be aware of all your options, and should explain them. If not, consider engaging someone else. Remember, the penalties can be very large, especially if your advisor is not skilled at this. There is even the potential for criminal prosecution.  See taxadvisorexpert.com for the latest information in this area or to contact one of our professionals today.

 

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, international tax, and other subjects. He writes about FBAR, OVDI, international taxation, captive insurance plans and other topics. 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, lawallach@aol.com,lanwalla@aol.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.

Employee Retention "Top Hat Plans"

By Brian 
 

Many firms are finding it harder and harder to obtain, retain, and reward key employees and executives.  Using a little known technique, employers can use special benefit options to "give" employees growing cash values in the form of company-paid cash-value accumulation insurance policies.  While not mainstream, these "savings programs" and disaster coverage is an effective bonus for employees while remaining a valid business deduction for employers.

I have found that the executive bonus is one of the best ways to attract and retain quality employees.  The executive bonus, also called a Section 162 plan, involves the purchase of life insurance on the life of a select employee and is extremely beneficial for both the employer and employee.  The employer pays the premium on the policy and includes that premium in the taxable wages of the employee.  The employee (or a trust) owns the insurance, names the beneficiary and has all rights in the policy.  The employer has no rights in the policy’s cash values or death benefit.  With the executive bonus, the employer will take an income tax deduction under Internal Revenue Code (IRC) Section 162 for the amount of the bonus, which is usually equal to the premium.  The employer can pay the premium to an insurance company, to the employee or to the employee’s trust.  The executive bonus is often used as a supplement to IRC Section 79.  Section 79 regulates employer non-discriminatory group term life insurance coverage, usually up to $50,000 per participant.  The executive bonus can be added to a group term plan when the employer wants to “carve out” a select employee or a select group of employees to receive additional life insurance protection.  These select employees are carved out of the Section 79 plan on a discriminatory basis.  As with any executive bonus plan, the employer may deduct the premiums as compensation.

How does it work?

The executive bonus is easy to implement.  The employee purchases and owns life insurance on his or her own life.  The employer pays the premiums to the insurance company.  The premiums are fully deductible to the employer as compensation to the employee under IRC Section 162.  The premiums are taxable income to the employee, and the employee owns the life insurance policy including policy values.  As the policy values grow, the employee benefits.

It has been my experience that some employers choose to pay not only the premium amount, but also the employees’ tax on the premium amount.  This second “bonus” pays the employee’s income tax on the first premium “bonus” and creates a “double bonus plan.”  The employer should consider a formal resolution or document the corporate minutes to show that premium payments are intended as compensation.  The employer and employee may also enter into a modification of ownership rights agreement.  Even though the employee is the owner of the policy, a modification of ownership rights agreement may limit the control the employee has over the use of policy values.  The employer may require that the employee is unable to access policy values for loans or withdrawals without written consent of the employer.

 

This article forgot to discuss that the IRS audits and fines people in section 79 plans.

 


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.