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          Lance Wallach in The Press

Money Magazine  

Is 2010 the Year of Avoiding Taxes?

In a speech last May, President Obama said, "Nobody likes paying taxes . . . . And yet, even as most
American citizens and businesses meet these responsibilities, there are others who are shirking theirs."
He was referring to offshore tax havens and other loopholes that wealthy Americans often exploit to
reduce their tax burden. But it doesn't take moving money to Switzerland to avoid paying taxes. If
history is any guide, 2010 will be a year in which many Americans use a few simple methods to
reduce their tax liability, which could potentially cost the government billions of dollars. This year is
the last before the expiration of tax cuts originally put in place by the Bush administration. If
Congress allows these tax cuts to expire, as the president supports, in 2011 the top marginal tax rates
will increase from 28, 33, and 35 percent to
Read more here

Detroit Free Press
$10B aimed at union retirees: Provision called welfare by some, not enough by others

WASHINGTON -- Ant labor forces say it's welfare for the UAW and Democrats' union allies. Labor
supporters say it falls short of what's needed as tens of thousands of union members are pushed into
early retirement as employers cut back health care coverage.

They're both talking about a $10-billion provision tucked deep inside thousands of pages of health
care overhaul bills that could help the UAW's retiree health-care plan and other union-backed plans.

It would see the government -- at least temporarily -- pay 80 cents on the dollar to corporate and
union insurance plans for claims between $15,000 and $90,000 for retirees age 55 to 64.

Big businesses with union workers are twice as likely to offer retiree benefits as nonunion ones.
Read more here



Jackson Observer
Without Aid, Union Health Plans Face Failure

WASHINGTON – The health care debate roiling the nation promises an even greater impact in Michigan: It could
determine whether the UAW’s gamble that it can insure 850,000 retirees from Detroit’s automakers pays off or goes
bust.
Thanks to Detroit’s twin auto bankruptcies and other concessions, the UAW’s voluntary employee benefit association,
or VEBA, had to take stock of unknown value for $24 billion in claims, while adding thousands of early retirees to its
rolls.
Outside experts estimate the funds have about 30 cents in cash for every dollar of future claims, with no guarantee of
what its stock assets will be worth. Lance Wallach, a New York-based VEBA expert, said if the funds “don’t get
something, they’re out of business in 12 years.”
That something may be national health care reform.
Key provisions in House and Senate proposals set aside $10 billion to pay some claims for early retirees covered by
employers and VEBAs, before other cost-saving measures kick in. Critics call it a union giveaway, but the union says
the money would keep companies from further slashing coverage.
Read more here






Remodeling   Hanley / Wood

No Shelter Here                                                September 2011
Backlash on too-good-to-be-true insurance plan

By: Lance Wallach

During the past few years, the Internal Revenue Service (IRS) has fined many business owners hundreds of thousands of dollars for participating
in several particular types of insurance plans.
The 412(i), 419, captive insurance, and
section 79 plans were marketed as a way for small-business owners to set up retirement, welfare benefit
plans, or other tax-deductible programs while leveraging huge tax savings, but the IRS put most of them on a list of abusive tax shelters, listed
transactions, or similar transactions, etc., and has more recently focused audits on them. Many accountants are unaware of the issues
surrounding these plans, and many big-name insurance companies are still encouraging participation in them.
Seems Attractive
The plans are costly up-front, but your money builds over time, and there’s a large payout if the money is removed before death. While many
business owners have retirement plans, they also must care for their employees. With one of these plans, business owners are not required to
give their workers anything.
Gotcha
Although small business has taken a recessionary hit and owners may not be spending big sums on insurance now, an IRS task force is auditing
people who bought these as early as 2004. There is no statute of limitations.
The IRS also requires participants to file
Form 8886 informing the IRS of participation in this “abusive transaction.” Failure to file or to file
incorrectly will cost the business owner interest and penalties. Plus, you’ll pay back whatever you claimed for a deduction, and there are
additional fines — possibly 70% of the tax benefit you claim in a year. And, if your accountant does not confidentially inform on you, he or she will
get fined $100,000 by the IRS. Further, the IRS can freeze assets if you don’t pay and can fine you on a corporate and a personal level despite the
type of business entity you have.
Legal Wrangling
Currently, small businesses facing audits and potentially huge tax penalties over these plans are filing lawsuits against those who marketed,
designed, and sold the plans. Find out promptly if you have one of these plans and seek advice from a knowledgeable accountant to help you
properly file Form 8886.


Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent
speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning.  He writes about 412(i), 419, Section79,
FBAR,
and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press
and has been featured on television and radio financial talk shows including NBC, National Pubic Radio’s All Things Considered, and others.
Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk
Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as the AICPA best-selling books, including Avoiding
Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case.
Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexpert.com. 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.




IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under
Section 6707A

Massachusetts Society of Public Accountants,Inc
Winter

By Lance Wallach

Taxpayers who previously adopted 419, 412i, captive
insurance or Section 79 plans are in big trouble.



In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and
classified these arrangements as listed transactions." These plans were sold by insurance agents, financial planners, accountants and
attorneys seeking large life insurance commissions. In general, taxpayers who engage in a
“listed transaction” must report such transaction to
the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax
deduction to participate. Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction. But
you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do
you have to file
Form 8886, but it also has to be prepared correctly. I only know of two people in the U.S. who have filed these forms properly for
clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for
Form 8886 presume a timely filling. Most people file late and follow the directions for currently preparing the forms. Then the IRS fines the
business owner. The tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS.

"Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by
continuing the deferral of income from contributions and deductions taken in prior years."

Many business owners adopted 412i, 419, captive insurance and Section 79 plans based upon representations provided by insurance
professionals that the plans were legitimate plans and were not informed that they were engaging in a listed transaction. Upon audit, these
taxpayers were shocked when the IRS asserted penalties under
Section 6707A of the Code in the hundreds of thousands of dollars. Numerous
complaints from these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A penalties.

The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the imposition of Section
6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these
taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS’s inquiry, especially
when the taxpayer had previously reached a monetary settlement with the
IRS regarding its deductions. Logic and common sense dictate that a
penalty should not apply if the taxpayer no longer benefits from the arrangement. Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has
participated in a listed transaction if the taxpayer’s tax return reflects tax consequences or a tax strategy described in the published guidance
identifying the transaction as a listed transaction or a transaction that is the same or substantially similar to a listed transaction.

Clearly, the primary benefit in the participation of these plans is the large tax deduction generated by such participation. Many taxpayers who are
no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of
income from contributions and deductions taken in prior years. While the regulations do not expand on what constitutes “reflecting the tax
consequences of the strategy,” it could be argued that continued benefit from a tax deferral for a previous tax deduction is within the
contemplation of a “tax consequence” of the plan strategy. Also, many taxpayers who no longer make contributions or claim tax deductions
continue to pay administrative fees. Sometimes, money is taken from the plan to pay premiums to keep life insurance policies in force. In these
It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction as described in
the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20, which classifies 419(e) transactions,
appears to be concerned with the employer’s contribution/deduction amount rather than the continued deferral of the income in previous years.
Another important issue is that the IRS has called CPAs material advisors if they signed tax returns containing the plan, and got paid a certain
amount of money for tax advice on the plan. The fine is $100,000 for the CPA, or $200,000 if the CPA is incorporated. To avoid the fine, the CPA
has to properly file Form 8918.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, Wallach is a
frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He is also a featured writer and has been
interviewed on television and financial talk shows including NBC, National Pubic Radio’s All Things Considered and others. Lance authored
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.

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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