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
Showing posts with label Benefit Plans. Show all posts
Showing posts with label Benefit Plans. Show all posts
Section 79 Plans: Unsettled Times Call For a Little Magic.
Section 79 Plans: Unsettled Times Call For a Little Magic.: Lance Wallach What does the future look like for those of us in the Employee Benefit industry? Some wonder if there will even be a...
Lance Wallach Life Insurance: Life Insurance Claims Denial Information - Lawyers...: Major news sources throughout the United States report that insurance providers are issuing life insurance benefits denials more than... was titled “Hot Topics in Regulation and Litigation for Life Insurers.” In it, he addressed regulatory issues that included developments in claims by state insurance commissioners that life insurers remit proceeds of stale policies to their state's unclaimed property fund, and litigation issues that included bad faith, stranger owned life insurance, and the use of retained asset accounts to pay benefits.
Lance Wallach Life Insurance: Life Insurance Claims Denial Information - Lawyers...: Major news sources throughout the United States report that insurance providers are issuing life insurance benefits denials more than...
was titled “Hot Topics in Regulation and Litigation for Life Insurers.” In it, he addressed regulatory issues that included developments in claims by state insurance commissioners that life insurers remit proceeds of stale policies to their state's unclaimed property fund, and litigation issues that included bad faith, stranger owned life insurance, and the use of retained asset accounts to pay benefits.
was titled “Hot Topics in Regulation and Litigation for Life Insurers.” In it, he addressed regulatory issues that included developments in claims by state insurance commissioners that life insurers remit proceeds of stale policies to their state's unclaimed property fund, and litigation issues that included bad faith, stranger owned life insurance, and the use of retained asset accounts to pay benefits.
Abusive and Noncompliant Plans
.1 There are a few things that the practitioner should know about how the IRS conducts audits of IRC §412(i) defined benefit retirement plans. These defined benefit plans are quite popular, despite extensive regulation by the Service. They tend to be funded by life insurance, annuities, or a combination thereof, and they often allow participating employers to realize substantial tax deductions, which accounts in large part for their popularity among business owners.
These plans are now technically called “IRC §412(e)(3) plans,” but the majority of practitioners still refer to these plans as “IRC §412(i) plans;” thus, the author refers to them as IRC §412(i) plans here.
.2 In auditing these plans, Service personnel have often discovered discrimination in favor of owners and key, highly compensated employees. There is also the general feeling that claimed tax relief is disproportionate to the economic realities of the transactions.
.3 Auditors have essentially divided the plans into two categories.
(A) The first are the plans that are substantially in compliance to varying degrees. Many auditors were initially surprised to discover that these plans were in compliance, believing initially that all of these plans were tax avoidance schemes of varying levels of sophistication. That proved not to be the case, as many of these plans are at least in substantial compliance with the tax laws. The Service refers to these plans as merely “noncompliant.”
(B) The second category would be those plans that the Service regards as “abusive.” The Service generally demands that these plans be revoked. This, of course, would entail back taxes, interest, and penalties being assessed against the plan sponsor. The treatment of noncompliant plans, often featuring only technical violations, is considerably less severe.
.4 Neither category is particularly well defined, which makes it unpredictable how the Service will proceed in a given situation. Some factors, however, if present, greatly increase the chances of being regarded as abusive. These include, but are not limited to, insurance policies/plans with the following:
(A) Springing cash values
(B) Manipulation of life insurance coverage by means of questionable “firings” and/or the use of sham, bogus entities, often on a multiple basis
(C) Discrimination in favor of owners and key, highly compensated employees
.5 The taxpayer is in for a special degree of difficulty should the plan in question be regarded as a listed transaction. A taxpayer, corporate or otherwise, who has engaged in such a transaction must disclose such participation by means of a form attached to the tax return, which many feel is likely to trigger an audit. If the taxpayer fails to disclose, s/he is almost automatically liable for severe penalties, simply for failing to disclose. These penalties are not subject to appeal, and the Tax Court lacks the jurisdiction to overturn or even to reduce them.
.6 What alternatives are available to the sponsor of a plan that is merely noncompliant? There are essentially two of them.
(A) The first is quite unattractive. It entails, basically, treating the plan as if it never existed. This, of course, triggers, to the fullest extent possible, back taxes, penalties, and interest on all contributions that were made, not to mention leaving behind no pension plan whatsoever. This is exactly how abusive plans are treated. There is a much better alternative, however.
(B) The alternative is to convert to a traditional defined benefit pension plan. This is possible because it is permissible to change the benefit formula and other terms, so long as no participant’s benefits are reduced. However, to the extent that funding amounts are lower under the converted plan, back taxes, interest, and penalties will be triggered. The penalty will be 25 percent of the tax amount, and a 10-percent excise tax will also be imposed. Finally, there will be a separate monetary sanction, based on the underlying facts and circumstances. This is to be negotiated directly with the Service. An experienced, competent negotiator should be hired for this purpose.
.7 What, if anything, can be done to salvage something when a plan has been deemed abusive? The answer seems to be, not much. The option of converting to a traditional defined benefit plan is available, and even then probably only after extensive negotiating only if the restructured plan is “beneficial” to rank-and-file employees. The precise problem, at present, is that the term “beneficial,” in this context, lacks a precise definition.
The Team Approach to Tax, Financial and Estate Planning.
by Lance Wallach
CPAs are the best and most qualified professionals when it comes to serving their clients needs, but they need to know when and how to coordinate with other experts.
Over the last twenty years we have worked with thousands of practitioners who have decided to add financial services to their practices. They do it for a variety of reasons, but the most common are as follows:
*They don’t want to refer their client elsewhere when they request financial services.
* They want to remain competitive.
*They want to diversify and increase their revenue as opposed to depending solely on tax and accounting revenue.
While helping these professionals add planning and investment services to their core offerings, we have found that they achieve four main benefits after doing so:
1. They are more satisfied with their work.
2. Their clients are more satisfied because they can work with someone they trust to meet financial goals.
3. Their clients give them more referrals.
4. Their incomes increase.
We believe that CPAs are the most appropriate--and perhaps the only--professionals who can provide comprehensive financial services to clients because they understand their clients' tax and financial situations. Their clients trust these practitioners to provide professional advice that is in their best interest. In fact, we believe that tax professionals have an obligation and responsibility to advise their clients, and clients expect their professionals to advise them in these important areas.
With a combination of never-ending tax reform, the Tax Code's significant and complex changes, and the market volatility we've experienced over the past few years, clients need guidance more than ever. Practitioners who provide financial planning and investment advisory services are in a position to advise and assist their clients with these issues.
Practitioners just starting out in this arena may not possess the myriad skill sets and substantive knowledge required to embark on new business ventures.
CPAs who don't have all of the necessary talent in-house may find it easier to associate themselves with strategic "partners" who can provide the proper skill sets, training, technology, support and turnkey solutions in their specialized disciplines and niches, to help identify and meet their clients' financial goals.
Adapted from "The Team Approach to Tax, Financial & Estate Planning," edited by Lance Wallach, with chapters by Katharine Gratwick Baker, Fredda Herz Brown, Dr. Stanly J. Feldman, Ira Kaplan, Joseph W. Maczuga, Roger E. Nauheimer, Roger C. Ochs, Matthew J. O'Connor, Richard Preston, Steve Riley, Carl Lloyd Sheeler, Peter Spero, Paul J. Williams, and Roger M. Winsby. Product 017235.
Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.com.
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.
CPAs are the best and most qualified professionals when it comes to serving their clients needs, but they need to know when and how to coordinate with other experts.
Over the last twenty years we have worked with thousands of practitioners who have decided to add financial services to their practices. They do it for a variety of reasons, but the most common are as follows:
*They don’t want to refer their client elsewhere when they request financial services.
* They want to remain competitive.
*They want to diversify and increase their revenue as opposed to depending solely on tax and accounting revenue.
While helping these professionals add planning and investment services to their core offerings, we have found that they achieve four main benefits after doing so:
1. They are more satisfied with their work.
2. Their clients are more satisfied because they can work with someone they trust to meet financial goals.
3. Their clients give them more referrals.
4. Their incomes increase.
We believe that CPAs are the most appropriate--and perhaps the only--professionals who can provide comprehensive financial services to clients because they understand their clients' tax and financial situations. Their clients trust these practitioners to provide professional advice that is in their best interest. In fact, we believe that tax professionals have an obligation and responsibility to advise their clients, and clients expect their professionals to advise them in these important areas.
With a combination of never-ending tax reform, the Tax Code's significant and complex changes, and the market volatility we've experienced over the past few years, clients need guidance more than ever. Practitioners who provide financial planning and investment advisory services are in a position to advise and assist their clients with these issues.
Practitioners just starting out in this arena may not possess the myriad skill sets and substantive knowledge required to embark on new business ventures.
CPAs who don't have all of the necessary talent in-house may find it easier to associate themselves with strategic "partners" who can provide the proper skill sets, training, technology, support and turnkey solutions in their specialized disciplines and niches, to help identify and meet their clients' financial goals.
Adapted from "The Team Approach to Tax, Financial & Estate Planning," edited by Lance Wallach, with chapters by Katharine Gratwick Baker, Fredda Herz Brown, Dr. Stanly J. Feldman, Ira Kaplan, Joseph W. Maczuga, Roger E. Nauheimer, Roger C. Ochs, Matthew J. O'Connor, Richard Preston, Steve Riley, Carl Lloyd Sheeler, Peter Spero, Paul J. Williams, and Roger M. Winsby. Product 017235.
Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. Contact him at 516.938.5007 or visit www.vebaplan.com.
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.
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