419 Life Insurance Plans and Other Scams – Large IRS Fines –


The IRS Raids Plan Promoter Benistar, and What Does All This Mean To You?


Posted: Dec. 9

By Lance Wallach

Recently IRS raided Benistar, which is also known as the Grist Mill Trust, the promoter and operator of one of the better known and more heavily scrutinized of the Section 419 life insurance plans. IRS attacked the Benistar 419 plan, and one of its tactics was to demand the names of all the clients Benistar worked with — so they could be audited by the IRS, Benistar refused to give the names and actually appealed the decision to turn over the names. The appeal was unsuccessful, but Benistar officials still refused to give up the names. Recently, the IRS raided the Benistar office and took hundreds of boxes of information, which included information on clients who were in their 419 plan. In documents filed by Benistar itself, they stated that 35 to 50 armed IRS agents descended upon their office to seize documents.
IRS has visited, and is still visiting most of the other plans and obtaining names of participants, selling insurance agents, accountants, etc. They have a whole task force devoted to auditing 419, 412i and other abusive plans.
It’s important to understand what could happen to unsuspecting business owners if they get involved in plans that are not above board. Their names could be turned over to the IRS, where audits could ensue, and where the outcome could be the payment of back taxes and significant penalties. Then they would be fined another time under Section 6707A for not properly reporting on themselves.
Most 419 life insurance and 412i defined benefit pension plans were sold to successful business owners as plans with large tax deductions where money would grow tax free until needed in retirement. I would speak at national accounting and other conventions talking about the problems with most of these plans. I would be attacked by some attendees who where making large insurance commissions selling the plans. I would try to warn insurance company home office executives, but they too had their heads in the sand because of all the money these plans brought in. Then the IRS got tough and started fining the unsuspecting business owners hundreds of thousands a year for not reporting on themselves for being in the plan. The agents and insurance companies advise against filing. “This is a good plan. We have approval.” Not only were the business owners fined under IRS Code 6707A, but the insurance agents were also fined $100,000 for not reporting on themselves. Accountants who signed tax returns are even being fined 100,000 by IRS. Then the business owners sue the accountants, insurance agents, etc. I have been following these scenarios for a long time. In fact, I have been an expert witness in many of these cases, and my side has never lost.
Most promoters of 419 plans told clients that their plans complied with the laws and, therefore, were not listed tax transactions. Unfortunately, the IRS doesn’t care what a promoter of a tax-avoidance plan says; it makes its own determination and punishes those who don’t comply.

The McGehee Family Clinic, P.A. was recently hit with back taxes and a penalty under Code Sec. 666A in conjunction with a deduction to the Benistar 419 plan
 Dr. McGehee's clinic took a deduction for a 419 plan (the Benistar plan) back in 2005. Eventually, the McGhee Family Clinic was audited. After the audit, the doctor was told that the deduction would be disallowed and that back taxes were due. Additionally, Dr. McGehee was hit with a 20 percent accuracy-related penalty under Code Sec. 6662A. Finally, the tax court sustained the IRS's determination that McGehee was subject to the increased 30 percent penalty, because its return did not include a disclosure statement indicating its participation in the Benistar Trust. I think that in addition to the aforementioned fines, IRS will now fine him, both on a corporate and personal level, another $200,000 or more, under IRC 6707A, for not properly disclosing his participation in a listed transaction. There was a moratorium on those fines until June 2010, pending new legislation to reduce them. The fines had been 200,000 per year on the corporate level and $100,000 per year on the personal level. You got the fine even if you made no contributions for the year. All you had to do was to be in the plan. So Dr. McGehee's fine would be a total of $300,000 per year for every year that he and his corporation were in the plan.
IRS also says the fine is not appealable. His fine would be in the million-dollar range and it would be in addition to the back taxes, interest, and penalties already discussed earlier in this paragraph.
Legislation just passed slightly reducing those fines, but you still have to properly file to start the Statute of Limitations running to avoid the fines. IRS is fining people who report on themselves, but make a mistake on the forms.  Now that the moratorium on the fines has passed, and so has the new legislation, IRS has aggressively moved to fine unsuspecting business owners hundreds of thousands. This is usually after they get audited, and sometimes reach agreement with IRS. Then another division or department of the IRS imposes a fine under 6707A. I am receiving a lot of phone calls from business owners who this is happening to. Unfortunately, some of these people already had called me. I warned them to properly file under 6707A. Either they did not believe me - it is unbelievable -  or their accountant or tax attorney filed incorrectly. Then they called again after being fined.
If you were involved with one of these abusive plans, there are steps that you can take to minimize IRS problems. With respect to filing under Section 6707A, I know the two best people in the country at filing after the fact, which is what you would be doing at this point, and still somehow avoiding the fine. It is an art that both learned through countless hours of research and numerous conversations with IRS personnel. Both have filed dozens of times for clients, after the fact, without the clients being fined. Either may well still be able to help you.
And the right accountant, one with the proper knowledge, experience, and Service contacts, can help with the other IRS problems as well. I recall a case where a CPA I knew and recommended was able to get $300,000 or so in liabilities reduced to three thousand dollars and change. Do not count on a result like this, but help is available.

It’s not worth it!
Stay away from 419 and similar plans like Section 79 plans. Be very careful with 412i plans. Avoid most captive insurance plans.
It’s getting closer to the end of the year. This is when every scammer known to man/woman comes out of the woodwork to sell some fly-by-night tax-deductible plan to clients. Sometimes they come in the form of an accountant, insurance agent-financial planner, or even an attorney. I see this in all of my expert witness cases and when I speak at conventions. I have seen this since the 1990s. I wanted to remind readers that, if it sounds too good to be true, it probably is.
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 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 has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.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.

Lance Wallach
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.


6 comments:

  1. 419,Millennium Plan,Bisys,Creative Services Group,Sterling Benefit Plan,Compass 419,Niche 419,CRESP,Sea Nine Veba, American Benefits Trust, National Benefit Plan and Trust, ABT, Professional Benefits Trust Benistar 419 Plan, nova trust, Grist mill trust, Sadi Trust IRS raids, Millennium 419 Plan,Bisys 419,Creative Services Group 419 Plan,Sterling Benefit 419 Plan,CRESP 419,Sea Nine Veba 419, National Benefit Plan and Trust 419, American Benefits Trust 419,ABT 419,Old Mutual, Allmerica Financial, American Heritage Life, Commercial Union Life, National Life of Vermont, Old Line Life, Security Mutual Life, West Coast Life "Grist Mill Trust" "Real Veba""Section 79 GEAR" GEAR" "United Financial Group" "Kenny Hartstein" "Millennium Plan" Kenny Hartstein" "Millennium Plan" "Tom Crosswhite" "Greg Roper""captive insurance" cresp "Ridge Plan" "Professional benefits Trust" "PBT " "Professional Planning Associates" "National Pension Associate" "NPA""Heritage Plan" ""Insurance fraud""pension and benefit plan fraud""insurance company fraud""ECI Pension Services""Pension Professionals of America""ABI""Hartford""AIG""Indy Life""Indianapolis Life""Advantage" Names of People who SOLD: "Kenny Hartstein""Dennis Cunning""Steve Toth""Michael Sonnenberg"Larry Bell""Scott Ridge""Randall Smith""Greg Roper""Tracy Sunderlage""Warren Trust""Joseph Donnelly""Norm Bevan""Judy Carsrud""Dan Carpenter""Ed Waesche" "Tom Crosswhite""David Struckman""George Huff" "Tom Crosswhite" "Greg Roper""Christopher Jarvis" David Mandell" Gen Von Oder Insurance Companies -- need to be 412 AND 419: Hartford 419, Pacific Life 419, PAC Life 419, AVIVA, 419, Indianpolis Life, Penn Mutual419,Bankers Life 419, John Hancock 419, Security Mutual 419, Transamerica 419,Prudential 419, Kansas City Life 419, Mass Mutual419, Guardian 419, Amerus 419, Wells Fargo 419, Fifth Third Bank 419, Arrow Head Trust 419, U.S. Benefits Group, Benefit Plan Advisors, Rex Insurance Service,Advantage,AIG, Old Mutual, Allmerica Financial, American Heritage Life, Commercial Union Life, National Life of Vermont, Old Line Life, Security Mutual Life, We
    AS AN expert witness lance wallach has never lost a case.

    ReplyDelete
  2. Protecting Clients from Fraud, Incompetence and Scams discussion


    4 views
    419 412i captive insurance section 79 scams IRS audits lawsuits

    Comments (showing 1-19 of 19) post a comment » dateDown_arrow newest »
    message 1: by Lance - rated it 5 stars Nov 11, 2013 11:50AM
    Lance Wallachwww.taxaudit419.com for help

    reply | flag *
    message 2: by Lance - rated it 5 stars Nov 11, 2013 11:50AM
    Lance Wallach The Truth About Variable Annuities

    Have you ever wondered why so many of your clients own variable annuities? Upon review if these variable annuities, do you frequently see the word “guarantee”? Guarantee, what does that mean these days? Let’s explore the answer to these questions as we gain an understanding of variable annuities.

    The typical VA acts as a tax deferred tax shelter, like a Traditional IRA or 401(k). Unlike a Traditional IRA or 401(k), a client can open any sized (e.g.: $1,000 or $1 million) VA, independent of their income, age or employment status. This is quite attractive for clients looking to shelter income from taxation, particularly for those that cannot achieve their goal with a Traditional IRA or 401(k).

    As a reminder, Traditional IRAs can only be established by those under the age of 70 ½ and those (or the spouse of those, if married filing jointly) who receive income or alimony. With a 401(k), your client must be employed to be eligible to make contributions. Each vehicle has contributions limits, which limit the tax sheltering benefits.

    In almost all cases a variable annuity (VA) is a form of life insurance. The typical financial planner (translation: insurance salesperson), markets the variable annuity as a way to safely invest in the financial markets, without risking your client’s principal. We all know there is no such thing as a free lunch inside or outside the world of finance.

    The insurance salesperson will often tell your client you cannot earn less than 6% or 7% on the investment. This only part of the story - and, as you have probably already imagined – only the good part.

    Inherent in most VA policies are two components, an investment component and an insurance component. The investment component offers a choice of investments similar to mutual funds, called sub-accounts. It is the insurance component that takes a bit of time to understand.

    In its simplest form, the insurance component of a VA includes a death benefit. The death benefit “guarantees” (see section entitled: Guarantee) the beneficiary will receive the greater of the:
    1) value of the VA at death or
    2) the total of all contributions

    Let’s look at an example of an investor, whose portfolio was 100% invested in a stoc

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  3. Friday, March 7, 2014
    KENNETH ELLIOT: Sea Nine VEBA Important
    KENNETH ELLIOT: Sea Nine VEBA Important: As of August 23,2013, the IRS has closed audits of 12 Sea Nine VEBA plan-participating taxpayers who were referred to Sea Nine by Sarva. For...
    Posted by lance wallach at 6:04 AM
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    4 comments:

    lance wallachMarch 7, 2014 at 6:31 AM
    www.taxaudit419.com for help
    Help with Common IRS Problems

    Tuesday, January 21, 2014

    RAMESH SARVA: Sarva- More You Should Know
    RAMESH SARVA: Sarva- More You Should Know: Sarva has similarly made numerous false statements to his customers about the Sea Nine VEBA plans despite his notice

    RAMESH SARVA
    Tuesday, January 7, 2014
    SARVA
    Defendants have also directly and indirectly promoted the VEBA plan scheme to prospective participants. Sarva for his part has been marketing Sea Nine's VEBA plans to customers across the United States for nearly 30 years- even before Elliot became involved- and continues to do this today.
    Posted by Lance Wallach at 1:30 P

    Reply

    Lance WallachMarch 10, 2014 at 11:42 AM

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  4. 419 Welfare Benefit Plan, Lawsuits, IRS Audits



    If you have been harmed or abused by a broker, insurance agent, Insurance
    company, or financial advisor in a 419 welfare benefit plan,We can help you.
    Our team of ex-IRS agents, and tax attorney CPAs have successfully fought the IRS.

    Lance Wallach, the leading authority on 419 plans, writes the books that others learn from.
    As an expert witness, his side has never lost a lawsuit.

    Call Lance now to discuss how we can help you.This confidential,
    free discussion will be the start of dealing with your 419 problems.

    Contact Information

    Phone: 516-938-5007
    Fax: 516-938-6330
    Email: Lanwalla@aol.com



    Dolan Media Newswires-
    Small Business Retirement Plans Fuel Litigation


    Small businesses facing audits and potentially huge tax penalties over certain types of retirement plans are filing lawsuits against those who marketed, designed and sold the plans.


    The 412(i) and 419(e) plans were marketed in the past several years as a way for small business owners to set up retirement or welfare benefits plans while leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters and has more recently focused audits on them.

    The penalties for such transactions are extremely high and can pile up quickly - $100,000 per individual and $200,000 per entity per tax year for each failure to disclose the transaction - often exceeding the disallowed taxes.There are business owners who owe $6,000 in taxes but have been assessed $1.2 million in penalties. The existing cases involve many types of businesses, including doctors' offices, dental practices, grocery store owners, mortgage companies and restaurant owners. Some are trying to negotiate with the IRS. Others are not waiting. A class action has been filed and cases in several states are ongoing.
    The business owners claim that they were targeted by insurance companies; and their agents to purchase the plans without any disclosure that the IRS viewed the plans as abusive tax shelters. Other defendants include financial advisors who recommended the plans, accountants who failed to fill out required tax forms and law firms that drafted opinion letters legitimizing the plans, which were used as marketing tools.
    A 412(i) plan is a form of defined benefit pension plan. A 419(e) plan is a similar type of health and benefits plan. Typically, these were sold to small, privately held businesses with fewer than 20 employees and several million dollars in gross revenues. What distinguished a legitimate plan from the plans at issue were the life insurance policies used to fund them. The employer would make large cash contributions in the form of insurance premiums, deducting the entire amounts. The insurance policy was designed to have a "springing cash value," meaning that for the first 5-7 years it would have a near-zero cash value, and then spring up in value.Just before

    ReplyDelete
  5. The IRS is Looking for You...
    Did You Participate in a Sea Nine VEBA plan? Contact Lance Wallach

    IRS to Audit Sea Nine VEBA Participating Employers


    The IRS may be auditing many more participating employers in the coming months.
    In recent months, I have received phone calls from participants in the Sea Nine VEBA and have learned that the IRS may be auditing many more participating employers in the coming months. To better assist current Sea Nine clients and those that are now or may be under audit in the future, my associates who are CPAs, tax attys and former IRS employees
    will continue to help with the Sea Nine VEBA victims and others in 419 412i captive insurance and section 79 scams and answer the following:

    • What is the IRS’s position with respect to the Sea Nine VEBA,419 captive insurance and section 79 scams?
    • What will be the likely result of my audit?
    • What if I don't agree with my audit results?
    • What are other participants doing with respect to the audits?
    • Will the IRS impose interest and penalties?
    • What is a “listed transaction” ?
    • What is Form 8886, and what are the penalties for failing to file Form 8886?
    • Will I be responsible even if I relied on my tax advisor?
    • What recourse do I have against those that promoted and sold the Sea Nine VEBA?

    ReplyDelete
  6. The IRS is Looking for You...
    Did You Participate in a Sea Nine VEBA plan? Contact Lance Wallach

    IRS to Audit Sea Nine VEBA Participating Employers


    The IRS may be auditing many more participating employers in the coming months.
    In recent months, I have received phone calls from participants in the Sea Nine VEBA and have learned that the IRS may be auditing many more participating employers in the coming months. To better assist current Sea Nine clients and those that are now or may be under audit in the future, my associates who are CPAs, tax attys and former IRS employees
    will continue to help with the Sea Nine VEBA victims and others in 419 412i captive insurance and section 79 scams and answer the following:

    • What is the IRS’s position with respect to the Sea Nine VEBA,419 captive insurance and section 79 scams?
    • What will be the likely result of my audit?
    • What if I don't agree with my audit results?
    • What are other participants doing with respect to the audits?
    • Will the IRS impose interest and penalties?
    • What is a “listed transaction” ?
    • What is Form 8886, and what are the penalties for failing to file Form 8886?
    • Will I be responsible even if I relied on my tax advisor?
    • What recourse do I have against those that promoted and sold the Sea Nine VEBA?

    ReplyDelete