Did you Participate in a 419 or 412i Benefit Plan?
Lance Wallach is the nation's foremost expert on 419 plans, 412i plans, listed transactions, reportable transactions, Section 79 plans, captive Insurance plans
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Find an Expert Witness: Do You Have a Potential Abusive Tax Avoidance Transaction
PhoneCall Lance Wallach at (516) 938-5007 People think that accountants and tax lawyers lead boring lives. Perhaps that may be true for some, but there is plenty of action these days with the IRS and their Employment Plans tax group. Recently, the IRS identified an “emerging issue” that it calls a potential Abusive Tax Avoidance Transaction. If you are a small business with an employment benefit plan, those words are never good to hear. According to an internal IRS training document we recently obtained, the IRS is now targeting for audit small and medium sized businesses that created their own separate management companies. While creating a separate company to provide management services is legal, the IRS wants to make sure there is a legitimate business reason for doing so. The IRS is actively examining (auditing) businesses that are funneling large sums of money from the operating company to the management company and thus insuring the operating company pays little or no taxes. By transferring funds to the management company, the business strips away much of the income from operations.
Once the money is in the management company, the owners create a defined benefit plan that benefits only the owners and none of the rank and file workers.
Accountants and business owners with these set ups should expect an audit. While there are many valid business reasons to create captive management companies, those with well funded defined benefit plans that only benefit the owner should expect a knock on the door from the IRS and some high penalties as well.
Recently the IRS has been focusing a great deal of audit resources within the employment plan area. In addition to the management company issue, IRS continues to look for noncompliant 412 and 419 plans, often called “welfare benefit plans” or similar names. These are considered reportable transactions and many are abusive tax shelters. The penalties for these plans can be $100,000 to $200,000 per year!
Plans set up by Internet and outside promoters often look slic
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Find an Expert Witness:
Do You Have a Potential Abusive Tax Avoidance Transaction
By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
PhoneCall Lance Wallach at (516) 938-5007
People think that accountants and tax lawyers lead boring lives. Perhaps that may be true for some, but there is plenty of action these days with the IRS and their Employment Plans tax group. Recently, the IRS identified an “emerging issue” that it calls a potential Abusive Tax Avoidance Transaction. If you are a small business with an employment benefit plan, those words are never good to hear.
According to an internal IRS training document we recently obtained, the IRS is now targeting for audit small and medium sized businesses that created their own separate management companies. While creating a separate company to provide management services is legal, the IRS wants to make sure there is a legitimate business reason for doing so. The IRS is actively examining (auditing) businesses that are funneling large sums of money from the operating company to the management company and thus insuring the operating company pays little or no taxes. By transferring funds to the management company, the business strips away much of the income from operations.
Once the money is in the management company, the owners create a defined benefit plan that benefits only the owners and none of the rank and file workers.
Accountants and business owners with these set ups should expect an audit. While there are many valid business reasons to create captive management companies, those with well funded defined benefit plans that only benefit the owner should expect a knock on the door from the IRS and some high penalties as well.
Recently the IRS has been focusing a great deal of audit resources within the employment plan area. In addition to the management company issue, IRS continues to look for noncompliant 412 and 419 plans, often called “welfare benefit plans” or similar names. These are considered reportable transactions and many are abusive tax shelters. The penalties for these plans can be $100,000 to $200,000 per year!
Plans set up by Internet and outside promoters often look slic