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.
ance 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 more than 20 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 his side has never lost a case.
ReplyDeleteBy Expert Witnessestorney who has settled several cases against insurance companies, said that although the lost tax benefit is not recoverable, other damages include the hefty commissions - which in one of his cases amounted to $860,000 the first year - as well as the costs of handling the audit and filing amended tax returns.
ReplyDeleteDefying the individualized approach an attorney filed a class action in federal court against four insurance companies claiming that they were aware that since the 1980s the IRS had been calling the policies potentially abusive and that in 2002 the IRS gave lectures calling the plans not just abusive but "criminal." A judge dismissed the case against one of the insurers that sold 412(i) plans.
The court said that the plaintiffs failed to show the statements made by the insurance companies were fraudulent at the time they were made, because IRS statements prior to the revenue rulings indicated that the agency may or may not take the position that the plans were abusive. The attorney, whose suit also names law firm for its opinion letters approving the plans, will appeal the dismissal to the 5th Circuit.
In a case that survived a similar motion to dismiss, a small business owner is suing Hartford Insurance to recover a "seven-figure" sum in penalties and fees paid to the IRS. A trial is expected in August.
Last July, in response to a letter from members of Congress, the IRS put a moratorium on collection of §6707A penalties, but only in cases where the tax benefits were less than $100,000 per year for individuals and $200,000 for entities. That moratorium was recently extended until March 1, 2010.
But tax experts say the audits and penalties continue. "There's a bit of a disconnect between what members of Congress thought they meant by suspending collection and what is happening in practice. Clients are still getting bills and threats of liens," Wallach said.
"Thousands of business owners are being hit with million-dollar-plus fines. ... The audits are continuing and escalating. I just got four calls today," he said. A bill has been introduced in Congress to make the penalties less draconian, but nobody is expecting a magic bullet.
"From what we know, Congress is looking to make the penalties more proportionate to the tax benefit received instead of a fixed amount."
Dolan Media Newswires 01/22
Small Business Retirement Plans Fuel Litigation
AUTHOR: Lance Wallach
Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC