Avoid IRS Penalties: reportable transactions

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Disclose IRS reportable transactions properly or face huge fines

IRS Form 8886, Reportable Transaction Disclosure Statement and answers to FAQ

filing IRS Form 8886, Reportable Transaction Disclosure Statement and answers to frequently asked questions about Form 8886 and reportable transactions and filing threshold.

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Why You Should Not Own Mutual Funds: 412i-419 Plans: 412i-419 Plans: 412i-419 Plans: RAMESH SARVA: Sarv...

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Captive Insurance and 419 Plans Litigation

Reportable Transactions- Help from the Experts

Tax Adviser Experts - Expert Legal Advice

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Victim of an Abusive Tax Shelter Fraud Litigation? Participated in 419 and/or 412i Plans? Had an IRS fine or audit? Problems with a reportable transaction?

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Lance Wallach, Managing Director, is the nation's leading expert on "employee benefit plans", "tax problem resolution" and IRS audits defense. Mr. Wallach's team of highly experienced tax attorneys, CPAs, and ex-IRS agents have helped his clients save hundreds and thousands of dollars successfully defending them in lawsuits and "IRS audits".

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Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Articles

INSURANCE COMPANIES ARE IN BIG TROUBLE AND MOST DO NOT KNOW IT

By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Call Lance Wallach at (516) 938-5007

http://www.hgexperts.com/expert-witness.asp?id=54302

By using a captive many insurance companies allow the companies to describe themselves as richer and stronger. This misleads regulators, the ratings agency and consumers who rely on rating. The NY insurance dept. said the insurance based in New York had burnished their books by $48 billion using captive insurance companies, often owned by the insurers.

I have been writing about some problems with captives for years, and this is one of the problems. The use of a captive to mislead people is not what captives are for, but some of them do this.

Insurance regulation is based on solvency. Because the transactions of using captives make companies look richer than they normally would be, so insurance companies are diverting reserves to other uses like executive compensation and stockholder dividends to try to raise the price of their stock. This is not a problem with mutual insurance companies where the insured’s are the stockholders.

By using a captive and trying to hide the fact, some insurance companies artificially increase their risk based capital ratios. These ratios are an important measurement of solvency.

Life insurer’s use of captive to shift obligations from their balance sheets has nearly doubled over the last few years. My concern is that the transactions of using captives do not accomplish the stated goal of transferring risk. Of course the insurance companies argue the opposite.

Some of the largest life insurance groups are MetLife, ING, Prudential, A.I.G., AEGON, Hartford, Manulife, Lincoln National, and ASA.

Insurance companies have been playing games for years. To sell more insurance many insurance companies have sold 419 and other plans that the IRS has called abusive transactions. Even after the IRS went after the buyers with large fines the insurance companies continued to sell life insurance inside of these plans. The also sold abusive 412i policies in the past with the same result. Now they are selling so called sections 79 plans which the IRS is looking at. As an expert witness in these types of cases my side has never lost a case.

Using captives is just the latest plan that many insurance companies are now using to look better. The state of NY is trying to do something about this. Most other states have not yet taken notice.

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.

ABOUT THE AUTHOR: Lance Wallach
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.

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

Posted by Lance Wallach at 7/1/2013 9:55 AM

Categories: uncategorized
Tags: 412i IRS taxshelters 419e 412i 6707A benefitplans IRStaxpenalties IRS_tax_penalties lance wallach expert witness

Reportable Transactions Lawline.com Continuing Legal Education

Did you Participate in a 419 or 412i Benefit Plan?: Reportable Transactions & 419 Plans Litigation: Se...

Did you Participate in a 419 or 412i Benefit Plan?: Reportable Transactions & 419 Plans Litigation: Se...: Reportable Transactions & 419 Plans Litigation: Senior Abuses : Bestselling AICPA CPE Self-Study Courses– March 2008 Avoiding Circular...

Monday, January 17, 2011

Senior Abuses

Bestselling AICPA CPE Self-Study Courses– March 2008

Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots, by Sid Kess

Author/Moderator: Lance Wallach, CLU, CHFC

Publisher: AICPA

Excerpts have been taken from this book about:

Senior Abuses

The following example is unfortunately not an isolated incident of an abusive sales practice. If accountants were consulted more often by their clients, maybe the following would never happen.

Senior citizen clients thought they had every reason to trust Mr. Sell BigPolicy as a financial counselor. The insurance agent had obtained a designation recognizing him as WE DO NOT WANT TO MENTION THE NAME Senior Advisor. He obtained this designation in 2002, a credential he made sure to advertise on fliers sent to retirees.

He did not mention how easy it had been to get that title.

He had paid $1,095 for a correspondence course, then took a multiple-choice exam with questions like, “Marketing can best be described as:” (The answer: “The process or technique of promoting the sale or distribution of a product or service.”) Like more than 18,700 other applicants since 1997, he passed.

Insurance companies, eager for sales representatives, embraced Mr. Sell Bigpolicy, as they have thousands of other newly credentialed advisors.

The following year, multiple insurers paid him commissions totaling $720,000 as his business with retirees soared.

But many of those sales came from steering older Americans into unwise investments, regulators contend in a lawsuit.

Mr. Sell Bigpolicy denies all wrongdoing, but one of his clients – a 73-year-old widow caring for a son with Down syndrome – said he tricked her into buying complicated insurance contracts that left her unable to pay dental and home repair bills.

“His office was filled with things saying he was certified to help seniors,” said that client. “The only one he really helped was himself.”

Taking care of the finances of older Americans is a huge and potentially lucrative field, and the market is growing. Attracted by this market, many financial planners have shifted their focus to it – and bring widely varying attitudes and professional training to the consultation table. Training and certification in financial gerontology is now being offered by at least four groups.

The Securities and Exchange Commission does not regulate these groups – or any other groups that provide financial planning certification, for that matter. “The S.E.C. does not endorse any professional designation,” said Susan Wyderko, director of the office of investor education of the S.E.C.

The absence of government supervision is a problem, said Stephen Brobeck, executive director of the Consumer Federation of America. “There’s an opportunity for fraud,” he said, adding that older people need to be very careful about whom they trust for advice.

Regardless of any planner’s credentials, the S.E.C. and consumer organizations say the best approach is “buyers beware.”

Investors can learn how to check the background of a financial planner, including any disciplinary actions, at the S.E.C.’s website, www.sec.gov. Such background checks, along with a discussion about an advisor’s approach to investing, are well advised before signing up with a planner.

“We see too many investors who might have avoided trouble,” Ms. Wyderko of the S.E.C. said, “had they asked basic questions right from the start.”

Mr. Sell Bigpolicy is one of tens of thousands of financial advisers working hand-in-hand with insurance companies to market themselves to older Americans using impressive sounding credentials.

Many of these titles can be earned in just a few days from businesses concerned only with the bottom line and sound similar to established credentials that require years of study, difficult tests and extensive background checks.

Many graduates of these short programs say they only want to help older Americans. But they are frequently dispensing financial counsel that they are not qualified to offer, advocates for the elderly say. And thousands of them are paid by some of the country’s largest insurance companies to sell elderly clients complicated investments that some economists say most retirees should never own.

More than two dozen such programs now exist, and have enrolled more than 39,000 people over the last decade.

But some of the existing programs, which are often linked to insurance companies, have taught agents to use abusive sales techniques, regulators say.

Some insurers have been listed as sponsors at seminars with names like the Million Dollar Academy, where thousands of sales representatives were advised to scare retirees by saying, “I am all that stands between you and potential catastrophic loss.” Other seminars instructed agents to “drive a wedge” between retirees and their established advisors.

“The insurers are happy to turn a blind eye to what salesmen are doing, as long as they make a sale,” said Minnesota’s attorney general, Lori Swanson, who is suing several companies, contending that their products are at best inappropriate, and possibly worse.
Insurance companies say they investigate the backgrounds of all agents, screen all sales to consumers to make sure they are appropriate, and have terminated representatives using improper sales methods. Those companies said they were not aware of abusive methods taught at any seminar they endorsed.

Some insurance companies say that they do not tolerate misrepresentation.

Another insurance company, in a statement, said “Any evidence of sales agent misconduct, without exception, results in immediate termination.”

Nonetheless, complaints over sales of insurance products have soared. In particular, grievances have stemmed from annuity sales. Obviously, occasionally a buyer of a product buys it without a full understanding of the product. If the product does not perform as expected, possibly because the stock market went down, the buyer may have a selective memory failure. The buyer can then complain to the insurance company, among other places. If the salesperson sold in good faith, and the product was appropriate, sometimes the buyer may still have recourse. Is this fair?

Over one third of all cases of financial exploitation of the elderly involve annuities, according to the North American Securities Administrators Association, a regulatory group [EM1]. Hundreds of lawsuits have been filed against insurers over annuity sales to the elderly. A judge in Minnesota ruled in 2007 that just one class action suit against a large insurance company could encompass as many as 400,000 plaintiffs. Do all of the plaintiffs deserve to be compensated? Who ends up with much of the money if the lawsuit is won? If you do not know the answer to the last question, ask yourself if it is a coincidence that huge class action litigation attracts prestigious large law firms like a picnic does flies.

In interviews, sales agents who have been accused of wrongdoing invariably say that they followed the guidance of insurance companies.

But consider, for example, that the vast majority of annuity sales do not offer immediate payouts. Instead, they require buyers to wait as long as 10 years to begin receiving benefits. Such contracts, known as deferred annuities, made up 97% of all annuity sales last year.

Deferred annuities, however, offer sales agents the richest commissions, which is one reason so many of them are sold every year, regulators say. Selling a $100,000 deferred annuity, for example, typically earns a sales representative $9,000, though buyers are sometimes prohibited from touching much of their money for 10 years without incurring penalties. No-load annuities, may feature little or no commission, and may not have penalties. Annuities with shorter tie ups carry much smaller commissions.

In summation, if it is true that sales agents who push large deferred annuities with long tie up periods are only following company guidance, that may be as negative a commentary on the companies as on the agents.

“An annuity that pays a fixed immediate income offers seniors a lot of security,” said Jean Setzfand, director of financial security with AARP. “But a deferred annuity is almost always a bad idea for a retiree.”

Those concerns, however, have not stopped many insurance agents from aggressively selling deferred annuities.

Some of those agents have been trained by organizations that require only a few days of classroom instruction.

For instance, the 1,200 people who have enrolled in a different senior adviser program spent only four days in a classroom, according to a spokesman.

The organization which gave Mr. Sell Bigpolicy his credentials is a for-profit company that has trained 24,000 enrollees since it was started in 1997.

The company that gave Mr. Sell Bigpolicy his designation has a course that lasts three and a half days, according to recent participants, and includes uplifting lectures, overviews on the sociology of aging and exercises including peering through vision-blurring lenses to get a sense of how some clients’ eyesight can falter.

Regulatory authorities tend to be ultra critical of these programs.

“There are limitless phrases being coined to convey an expertise in senior finances,” said Massachusetts securities regulator William F. Galvin. “Most of them seem designed to trick seniors into listening to swindlers.”

Most insurance salespeople are honorable and are not swindlers. As in most lines of work, however, not everyone is honorable and does the correct thing.

A representative for the organization said the program’s courses and questions were written and evaluated by experts. In a statement, the company said its training was intended to supplement, not substitute for, professional credentials and education. The organization began asking titleholders in March to disclose to potential clients that designation alone does not imply expertise in financial, health or social matters.

Despite that disclaimer, the company has trained thousands of insurance agents and other financial advisors. And about 100 companies, many of them insurers, endorse the designation, said a spokesman for the group.

Soon after Mr. Sell Bigpolicy received his designation, Mr. Sell Bigpolicy started displaying it in ads and on letters inviting retirees to seminars over free chicken lunches, according to Massachusetts regulators.

At those meetings, Mr. Sell Bigpolicy told retirees that they were perilously close to financial calamity, according to Massachusetts regulators and attendees. He warned them that the stock market’s ability to offset inflation was “a big lie,” according to documents collected by those regulators. Banks contained “weapons of mass destruction,” read one handout.

But annuities, Mr. Sell Bigpolicy noted, offered guaranteed returns, attendees said. At the time, he was authorized to sell annuities offered by more than two dozen insurance companies, state records show.

Mr. Sell Bigpolicy’s script, Massachusetts regulators say, used materials from another training company that had more than a dozen insurers as “partners” or “carriers” on the company’s Web site.

There are a few dozen companies, like the training company in question, that teach sales agents how to find retirees willing to buy annuities.

Some insurance companies say they endorse only training programs that are committed to ethical sales tactics and that their support is often limited to providing speakers or marketing materials. But they acknowledge that they cannot always police how agents present themselves.

Dozens of lawsuits against insurers contend that those companies failed to adequately supervise sales agents who sold inappropriate annuities to aging clients and then did not act when buyers complained.

Some insurers, in court filings and interviews, say they spend millions of dollars supervising sales agents and investigating consumer complaints.

Some insurance companies, and some state regulators, have changed the rules governing how annuity sales agents can behave.

This year, Massachusetts prohibited most financial advisers from using some titles unless they were recognized by an accreditation organization or the state. In 2007, two of the largest insurers told sales agents they could not use the designation of WE DO NOT WANT TO MENTION THE NAME senior adviser.

But in most other states and at most insurance companies, sales representatives can use any title they choose.

For his part, Mr. Sell Big Policy, while he awaits the outcome of his case, is still approved to sell annuities by more than two dozen insurers, according to state records. This is not an isolated example, which does not mean that an accountant should think that all insurance salespeople behave like this sales person. This example, in differing versions, does happen. If the customer consulted his or her accountant, which admittedly most do not, the above example, or something like it, may not happen.

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, 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 over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public 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 has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visitwww.taxaudit419.com/TaxHelp.html and www.taxlibrary.us

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

Did you Participate in a 419 or 412i Benefit Plan?: Reportable Transactions & 419 Plans Litigation: Se...

Monday, January 17, 2011

Senior Abuses

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Form 8886 & 419 Plans Litigation: Voluntary IRS Offshore Disclosure Program Reopens

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Friday, April 27, 2012

Notice 2007–84 Notice to all that 419 plans are abusive

Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). For further information regarding
this notice, contact Mr. Isaacs
at RetirementPlanQuestions@irs.gov

Ms. Clary. Trust Arrangements
Purporting to Provide
Nondiscriminatory
Post-Retirement Medical
and Life Insurance

Benefits

Notice 2007–84

Sections 419 and 419A of the Internal
Revenue Code set forth rules under
which employers are permitted to make
currently deductible contributions to welfare
benefit funds in order to provide their
retirees with medical and life insurance

benefits. Businesses often maintain welfare
benefit funds that comport with the
intent of §§ 419 and 419A and do in fact
provide meaningful medical and life insurance

benefits to retirees on a nondiscriminatory
basis, and make substantial contributions
to those welfare benefit funds that
are fully deductible. Such welfare benefit