Business Owners and Accountants Fined by IRS and Don't Know Why

Business Owners and Accountants Fined by IRS and Don't Know Why





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Accountants Business Owners and Others Face Large IRS Fines


     By Lance Wallach, CLU, CHFC



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Since the late nineties, unsuspecting business owners and professionals have purchased retirement plans and other plans from insurance professionals. The IRS has organized task forces to go after the abusive plans.

Since the late nineties, unsuspecting business owners and professionals have purchased retirement plans and other plans from insurance professionals. The IRS has organized task forces to go after the abusive plans. In the past, a business owner who was audited with an abusive plan would lose his tax deduction and pay interest and penalties. Now, there is also IRS code 6707A whereby in addition to the above, the IRS assesses additional huge fines on both the purchaser and material advisors for not reporting on themselves.

Accountants, insurance agents, and others sell 419 Welfare Benefit, 419, captive insurance, and section 79 plans to unsuspecting professionals and business owners. Since the IRS is calling many of these plans abusive tax shelters, many small business owners are getting audited and getting penalties under IRC 6707A. The IRS has even fined material advisors and accountants for their participation. The former business owner clients then sue the people who sold them these plans. The accountant who signed the tax return also is subject to lawsuits. I have been an expert witness in some of these cases and my side has never lost. For the accountant, this is an unbelievable situation. First he signed the tax return and did not know that anything was wrong. Then he sometimes tries to help his client with the 8886 forms, but since he has no experience with the form, he will make mistakes. The IRS treats these improperly filed and/or filled out forms as if they were never filed. My office occasionally gets a phone call from the accountant. When I try to explain the problem, the accountant usually does not believe it. Why would a legitimate insurance company that vetted the plan allow something abusive to be sold? Why hasn’t the accountant heard about these types of problems? Usually a few years following the initial phone call, the accountant or his client calls me with the big problem. The clients loses his tax deduction, pays interest and penalties, and is facing a large fine for failing to properly file form 8886. Sometimes the accountant is also facing a $100,000 fines as a material advisor. The IRS calls accountants material advisors if they get paid, give tax advice, or sign tax returns with abusive or similar plans on them. The accountant can also be referred to the office of professional responsibility.

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