CPA’s Guide to Life Insurance
Author/Moderator: Lance Wallach, CLU, CHFC, CIMC
Below is an excerpt from one of Lance Wallach’s new
books.
IRC Section 6707A, Form 8886
.1 Form
8886, Reportable Transaction Disclosure Statement, is required to be
filed by any taxpayer who is participating, or in some cases has participated,
in a listed or reportable transaction.
What attracted the most attention with respect to it, until very
recently, were the penalties for failure to file, which were $100,000 annually
for individuals and $200,000 annually for corporations. Recent legislation has reduced those
penalties in most cases. There is still
a minimum penalty of $5,000 annually for an individual and $10,000
annually for a corporation for failure to file.
If the minimum penalties do not apply, the annual penalty becomes 75
percent of whatever tax benefit was derived from participation in the listed
transaction, and the penalty is applied both to the business and to the
individual business owners. Since the
form must be filed for every year of participation in the transaction, the
penalties can be cumulative, i.e., applied in more than one year. For example, a corporation that participated
in five consecutive years could find itself, depending on the amount of claimed
tax deductions, looking at several hundred thousand dollars in fines, even
under the recently enacted legislation, before even thinking about back taxes,
penalties, interest, etc., that could result from an audit. Even the minimum fine would be $15,000 per
year, again in addition to all other applicable taxes and penalties, etc.
