Some Accountants Will Be In Trouble Because of IRS Notice 2007-83

[Lance Wallach]

Most accountants are not aware of the problems that their clients and themselves may face if any of their clients are or were in a 419 welfare benefit insurance plan. These popular plans were sold by many insurance agents and financial planners, and even some accountants and attorneys. In October 2007, the IRS issued two notices and a revenue ruling which, among other things, designated most of these plans as listed transactions. If the accountant is deemed to be a material advisor, she has to file with the IRS to avoid a $100,000 fine. Some of these plans have already gone out of business and a few of these plans have stolen the participants' money. For published articles on this and similar subjects see http://www.vebaplan.com.

[Bees Knees]

None of my clients are or were in a 419 welfare benefit insurance plan. I don't even know what it is.

[NotEasy]

what is it?

What is a 419 plan?

[BOB W]

I have dealt with Lance many years ago. A Veba Plan is basically deductable whole life insurance plan that can be above and beyond any pension plan limits. The Veba, for the most part , has no limits.

IRS has been on Veba Plans case, but if it is done right, it will hold up to IRS's standards.

[JoshinNC]

Is Lance trying to sell something,

get in our heads to sell something or is he being genuinely nice?

Bob, you seem to have personal experience with him. Any words of advice?

[New York Enrolled Agent]

[QUOTE...get in our heads to sell something
[/QUOTE]

Yes - he's a entertaining speaker but he is a VEBA salesman. He says he has a positive determination letter from the IRS regarding his set-up for a VEBA. Rev Ruling 2007-65 has some relevance. IRS Notice 2007-83 says some of these arrangements are considered listed transactions. Lance's target clients are highly compensated doctors, etc. He will speak to professional groups to explain his program.

[Y2KEA]

Dude only has 3 posts. Not sure what he is pushing.
Check them out. http://www.thetaxbook.com/forums/sea...?searchid=7105
IMHO 419 plan = snake oil = $$$$ for the seller/pusher.

[Y2KEA]

More BS on Lance Wallach

Lance Wallach's resume
LANCE WALLACH, CLU, CHFC, CIMC, what is he today?
68 Keswick Lane
Plainview, New York 11803
Phone: (516) 938-5007 / 935-7346
Fax: (516)938-6330
Email: lawallach@aol.com

https://www.lancewallach.com

Be Careful of Abusive 419(e) Welfare Benefit Plans
(Oct. 22, 2007)
By Lance Wallach and Ronald H. Snyder

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.

The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

And what happened to the providers that were peddling Sections 419A(f)(5) and (6) life insurance plans a few years ago? We recently found the answer: Most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.

IRC Section 419(e) provides a definition of the term "welfare benefit fund" and provides that it includes a trust or "organization described in paragraph 7, 9, 17 or 20 of Section 501(c)" or any taxable trust that provides welfare benefits. Reference to IRC Section 419(e) is, therefore, unnecessary.

So, what are 419(e) plans?

We recently reviewed several so-called Section 419(e) plans. Many of them are nothing more than recycled Section 419A(f)(5) and (6) plans. Now, many of the same promoters simply claim that a life insurance policy is a welfare benefit plan and therefore tax-deductible because it uses a single-employer trust, rather than a "10-or-more-employer plan." Many plans incorrectly purport to be exempt from ERISA, from Code Sections 414, 105, 505, 79, 4975, etc.

WHAT ARE THE PROBLEMS?

Vendors commonly claim that contributions to their plan are tax-deductible because they fall within the limitations imposed under IRC Section 419; however, Sec. 419 is simply a limitation on tax deductions. The deductions themselves must be claimed under enabling sections of the IRC. Many fail to do so. Others claim that the deductions are ordinary and necessary business expenses under Sec. 162, citing Regs. Sec. 1.162-10 in error: There is no mention in that section of life insurance or a death benefit as a welfare benefit.

Some plans claim to impute income for current protection under the PS 58 rules.

However, PS 58 treatment is available only to qualified retirement plans and split-dollar plans. (None of the 419(e) plans claim to comply with the split-dollar regulations.)

Recently, many accountants have been calling us for help. The IRS is sending audit letters to participants in some of the 419 plans. It has identified many of the 419 promoters, and demanded a listing of the names of companies in the plans.

Here's the problem that most promoters ignore: On April 10, 2007, the IRS issued final regulations under Sec. 409A of the IRC that made it crystal-clear that most of the so-called "419(e)" plans are in violation of the law and subject to hefty penalties, because they provide deferred compensation without complying with Sec. 409A.

HOW THIS APPLIES

Section 409A does not apply to welfare benefits. In fact, several forms of welfare benefits are specifically excluded under Sec. 409A. However, such excluded arrangements do not permit transfer of property to the participant except for death, disability and payments made upon retirement in accordance with the Section 409A rules.

Most of the existing Sec. 419(e) and 419A(f)(6) welfare benefit plans do not comply with the Sec. 409A rules relative to transfers of insurance policies or cash payments other than upon death.

What does this mean for advisors? Under Circular 230 standards, a CPA or attorney who advises their client about participating in a non-compliant welfare benefit plan may be liable for fines and other sanctions. (Glad he doesn't include Enrolled Agents) We expect that opinion letters relative to such plans have either been withdrawn or will be shortly. We admonish professionals carefully to review all communications with clients relative to such plans. The IRS has recently been successful in imposing huge fines on several law firms for blessing questionable transactions.

CONCLUSION

Time is of the essence in making and implementing a decision as to what to do. We have only seen one or two plans that may be in compliance. We therefore recommend that employers waste no time in contacting a tax professional to review their welfare benefit plan participation to verify compliance with the new law and regulations. Do not take the promoter's word that his plan is in compliance; odds are it is not.

Lance Wallach, CLU, ChFC, speaks and writes extensively about financial planning, retirement plans and tax reduction strategies, and is the author of Bisk Education's CPAs' Guide to Life Insurance. Reach him at www.vebaplan.com or (516) 938-5007. Ronald H. Snyder, JD, EA, is an ERISA attorney and enrolled actuary specializing in employee benefit plans.

This is who he is:
Registrant:
Veba Specialists Inc

68 Keswick Lane
Plainview, New York 11803
United States

Registered through: GoDaddy.com, Inc. (http://www.godaddy.com)
Domain Name: VEBAPLAN.COM
Created on: 02-Aug-99
Expires on: 02-Aug-10
Last Updated on: 08-May-06

Administrative Contact:
Wallach, Lance lawallachs@aol.com
Veba Specialists, Inc.
68 Keswick Lane
Plainview, New York 11803
United States
5169385007

Technical Contact:
Kelly, Kevin domains@bigbuzz.com
BigBuzz Internet Business Solutions
510 Broadhollow Rd.
Suite 300
Melville, New York 11747
United States
5168450702 Fax -- 5168450704

Domain servers in listed order:
NS1.SATURN5.NET
NS2.SATURN5.NET


Not sure what his profit motive is but suggest mods ban his IP until he 'splains himself better.

[Lance Wallach]

Thank You For Doing The Research About Me, Just trying to be helpful

TAX MATTERS



TAX BRIEFS

ABUSIVE INSURANCE PLANS GET RED FLAG

The IRS in Notice 2007-83 identified as listed transactions certain trust arrangements involving cash-value life insurance policies. Revenue Ruling 2007-65, issued simultaneously, addressed situations where the tax deduction has been disallowed, in part or in whole, for premiums paid on such cash-value life insurance policies. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposes severe penalties for welfare benefit plans that primarily and impermissibly benefit shareholders and highly compensated employees.

Taxpayers participating in these listed transactions must disclose such participation to the Service by January 15. Failure to disclose can result in severe penalties--- up to $100,000 for individuals and $200,000 for corporations.

Ruling 2007-65 aims at situations where cash-value life insurance is purchased on owner/employees and other key employees, while only term insurance is offered to the rank and file. These are sold as 419(e), 419(f) (6), and 419 plans. Other arrangements described by the ruling may also be listed transactions. A business in such an arrangement cannot deduct premiums paid for cash-value life insurance.

A CPA who is approached by a client about one of these arrangements must exercise the utmost degree of caution, and not only on behalf of the client. The severe penalties noted above can also be applied to the preparers of returns that fail to properly disclose listed transactions.



Prepared by Lance Wallach, CLU, ChFC, CIMC, of Plainview, N.Y.,
516-938-5007, a writer and speaker on voluntary employee’s beneficiary associations and other employee benefits. www.vebaplan.com


Journal of Accountancy January 2008

[Lance Wallach]

Welfare Benefit 419 Insurance Plans Named Listed Transactions

NSA MEMBER LINK January 23, 2008

During tax season, many accountants will unknowingly allow clients to deduct listed transactions or potentially abusive tax shelters. Under existing and new regulations, both the taxpayer and the accountant can be held accountable. For example, in February 2007 alone, we received over one thousand phone calls asking about 419, 412(i) and other potentially abusive plans.
The IRS has named most 419 welfare benefit insurance plans as listed transactions. Previously the IRS had named 419A (f)(6) plans as listed transactions. Taxpayers participating in these listed transactions must disclose such participation to the IRS. In addition, material advisors must also disclose their involvement. This involvement might include allowing the deduction of the plan on the client’s tax return. The penalty for nondisclosure can be $200,000.
Most accountants are not aware of these plans, which are sold by many insurance agents and financial planners. I have received hundreds of phone calls after the IRS has disallowed plans on audit. The IRS is now making accountants policemen with respect to these and other abusive plans that their clients may be participating in.
When I speak at accounting conventions about abusive plans, most accountants are not aware of what I am talking about, and do not think that their clients would be involved in these types of plans. Unfortunately, once they find out that their clients have contributed to these plans much of the damage has been done.
On Oct.17, 2007, the IRS, in Notice 2007-83, identified as listed transactions certain trust arrangements involving cash-value life insurance. Also simultaneously issued was Notice 2007-84, which disallows tax deductions and imposed severe penalties for welfare benefit plans that discriminate.
Many of these plans have already or will, go out of business. At least two of these plans have stolen the participants’ money.
An accountant who has a client in one of these plans, or who is approached by a client about one of these plans should be cautious, both for the client and for himself.
For more articles on the subject 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.