Reportable Transactions and 419 Plans Litigation - Welfare benefit, Medical, Retirement plan benefit and design, Pension specialists, 412i Lawsuits, 419 lawsuits, IRS Audits, 412i Problems, Expert Witness Lance Wallach
Reportable Transactions and 419 Plans Litigation - Welfare benefit, Medical, Retirement plan benefit and design, Pension specialists, 412i Lawsuits, 419 lawsuits, IRS Audits, 412i Problems, Expert Witness Lance Wallach
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WHAT YOU NEED TO KNOW!
PARTIES INVOLVED:
Typically, these transactions will include an Insurance company, accountant, tax attorney, and a promoter
(someone with an insurance background, perhaps an actuary, who knows how to structure the policy itself).
These groups will use insurance brokerages and sub-agents (licensed in the various states) to sell the policies
themselves. In this instance, I believe that some brokerage houses also sold the product.
INSURANCE COMPANIES
AMERICAN GENERAL LIFE INSURANCE COMPANY®
INDIANAPOLIS LIFE INSURANCE COMPANY®
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY®
PACIFIC LIFE INSURANCE COMPANY®
OTHERS ! ! BANKERS LIFE®?
Some of the insurance companies above have already been sued in HUNDREDS of cases.
PROMOTERS, ATTORNEYS, ACCOUNTANTS:
KENNETH HARTSTEIN
ECONOMIC CONCEPTS, INC.
PENSION SERVICES, LLC
HOW THESE PLANS WORK:
In the late 1990’s, the individuals and groups above devised a scheme to sell abusive tax shelters under the
auspices of Section 412(i) of the tax code. A 412(i) is a defined benefit pension plan. It provides specific
retirement benefits to participants once they reach retirement and must contain assets sufficient to pay those
benefits. A 412(i) plan differs from other defined benefit pension plans in that it must be funded exclusively by
the purchase of individual life insurance products. To create a 412(i) plan, there must be a trust to hold the
assets. The employer funds the plan by making cash contributions to the trust, and the Code allows the
employer to take a tax deduction in the amount of the contributions, i.e. the entire amount.
The trust uses the contributed funds to purchase some combination of life insurance products (insurance or
annuities) for the plan. As the plan participants retire, the trust will usually sell the policies for their present cash
value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified
retirement benefit to plan participants.
These defendants (with the aid and knowledge of the insurance companies) used the traditional structure and
sold life insurance policies with excessively high premiums. The trust then uses the large cash contributions to
pay high insurance premiums and the employer takes a deduction for the sum of those large contributions. As
you might expect, these policies were designed with excessively high fees or “loads” which provided exorbitant
commissions to the insurance companies and the agents who sold the products.
The policies that were sold were termed Springing Cash Value Policies. They had no cash value for the first 5-7
years, after which they had significant cash value. Under this scheme, after 5-7 years, and just before the cash
value sprung, the participant purchases the policy from the trust for the policy’s surrender value. In theory, you
have a tax free transaction.
The IRS does not recognize the tax benefit of such a plan and has repeatedly issued announcements indicating
that such plans are contrary to federal tax laws and regulations.
These plans were targeted to high net worth individuals, including doctors, dentists, corporate executives, and
professional athletes.
WARNINGS:
Do NOT ignore IRS LETTERS regarding Penalties!! This could be your first clue as to the fraud. Ignoring these
letters can cost you hundreds of thousands of dollars!
DO NOT sign ANY DOCUMENT that has a RELEASE against the insurance company or others!!!
If your Promoter/Agent tells you NOT to file tax forms - be CAUTIOUS and CONTACT your tax professional and
then CONTACT US!
412i, 419, IRS, IRS Audits, lance wallach, Lance Wallach Expert Witness, Life Insurance, Section 79, Tax,
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