Benistar 419 Plan
Grist Mill Trust
Sea Nine Veba
SADI Trust
Beta 419
Creative Services Group
Sterling Benefit Plan
Compass 419
Niche 419
American Benefits Trust
National Benefit Plan and Trust
Professional Benefits Trust
Old Mutual
Allmerica Financial
American Heritage Life
Commercial Union Life
National Life of Vermont
Old Line Life
Security Mutual Life
West Coast Life
ECI Pension Services
Pension Professionals of America
Indy Life
Indianapolis Life
Jacksom National
Jefferson-Pilot Life
Lincoln Benefit Life
Lincoln National Life
Manufacturers Life
Massachusetts Mutual
Metropolitan Life
Midland Life
Minnesota Mutual
Principal Life
Security Mutual
USG Annuity & Life
Western Reserve Life Assurance
Old Mutual
Allmerica Financial
American Heritage Life
Commercial Union Life
National Life of Vermont
Old Line Life
Security Mutual Life
West Coast Life
For Help With Any of These:
Call 516-938-5007

For more articles on this subject and closely
related topics go to any of these websites:

    Late Breaking News:

    Lance Wallach Newsletter July 2011

419, 412i, Captive Insurance and section 79 plans continue to
get large IRS fines.  

By Lance Wallach

Life insurance agents recently have started pushing the newest variety of high
ticket items. After the IRS has almost put 419 plans out of business and severely
curtailed abusive 412i plans they needed another way to sell large commission
life insurance policies. Many of the promoters of the 419 and 412i plans are now
promoting section 79 and captive insurance plans. They claim that these plans
allow businesses to tax deduct life insurance. These promoters as in the past
claim, that most of the benefits would be for the business owners. I have been an
expert witness in many cases against these abusive plans and my side has never
lost a case.
Recently my office has been receiving over fifty calls per month from people that
are being threatened with large IRS fines. Most of these people (including CPAs)
do not understand why this is happening. These fines are primarily the result of
greed. Insurance company, insurance agent, plan promoter and even IRS greed.
Insurance companies are always looking for ways to sell large amounts of life
insurance. Taxpayers are constantly looking for larger tax deductions. Insurance
agents want to earn large life insurance commissions. The IRS has started
additional enforcement action against taxpayers and accountants.
Taxpayers must report certain transactions to the IRS under Section 6707A of the
tax code, to help detect, deter, and shut down abusive tax shelter activities. For
example, reportable transactions may include participants in 419,412i, or other
insurance plans sold by insurance agents for tax deduction purposes. Other
abusive, listed or reportable transactions could include captive insurance and
Section 79 plans, which are usually sold by insurance agents for tax deductions.
Taxpayers must disclose their participation in these and other transactions by
filing a Reportable Transactions Disclosure Statement (Form 8886) with their
income tax returns. People that sell these plans are called material advisors and
must file form 8918 properly. Failure to report the transactions could result in huge
potentially heinous monetary penalties. Accountants who sign tax returns that
claim these deductions can also be called material advisors and should also file
form 8918 properly. Not all 412i,captive insurance and Section 79 plans are
abusive, listed or reportable transactions but almost all the Section 79 and captive
insurance plans that I have recently seen are abusive. Recently I have had
discussions with IRS personnel on point. But even as far back as 2002, I spoke at
the annual national convention of the American Society of Pension Actuaries on
potential abuses. I also was asked by the then acting IRS commissioner to meet
with high level IRS executives to further discuss these issues.  At this meeting with
senior IRS officials, there was a speakerphone so that high level Treasury officials
could listen in on the conversation.  Within a year of this meeting, the IRS
escalated attack on participants in 419 Welfare Benefit Plans.

The IRS has fined hundreds of taxpayers who did file under 6707A. They said that
they did not fill out the forms properly, or did not file correctly. The plan
administrator or a 412i advised over 200 of his clients how to file. They were then
all fined by the IRS for filling out the forms wrong. The fines averaged about
$200,000 per taxpayer.
A report by the Treasury Inspector General for Tax Administration (TIGTA) found
that the procedures for documenting and assessing the Section 6707A penalty
were not sufficient or formalized, and cases often are not fully developed.
TIGTA evaluated the IRS’s effectiveness in identifying, developing, and applying the
Section 6707A penalty. Based on its review of 114 assessed Section 6707A
penalties, TIGTA determined that many of these files were incomplete or did not
contain sufficient audit evidence. TIGTA also found a need for better coordination
between the IRS’s Office of Tax Shelter Analysis and other functions.
The Section 6707A penalty is a stand-alone penalty and does not require an
associated income tax examination; therefore, it applies regardless of whether the
reportable transaction results in an understatement of tax. TIGTA determined that,
in most cases, the Section 6707A penalty was substantially higher than additional
tax assessments taxpayers received from the audit of underlying tax returns. I have
had phone calls from taxpayers that contributed less than $100,000 to a listed or
reportable transaction and were fined over $500,000. I have had phone calls from
taxpayers that went into 419 or 412i plans, made no contributions, but
nevertheless were fined a large amount of money for being in a listed transaction
and not properly filing forms under IRC section 6707A. The IRS claims that the
fines are non-appealable.
If you are, or were in a 412i, 419, captive insurance or section 79 plan you should
immediately file under 6707A protectively. If you have already filed you should find
someone who knows what he is doing to review the forms. I only know of two
people who know how to properly file. The IRS instructions are vague and are
useless if you are filing late since they presume a timely file. If a taxpayer files
wrong, or fills out the forms wrong he still gets the fine. I have had hundreds of
phone calls from people in that situation.
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 and section 79 plans. He speaks at more than ten
conventions annually, writes for more than 20  publications, is quoted regularly in
the press and has been featured on television and radio financial talk shows
including NBC, National Pubic 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 his side has never lost a case. Contact him at 516.938.5007,, or visit or

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.
United States District Court,
District of Massachusetts


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