CJA And Associates

Kinsale Insurance Company v. CJA and Associates, Inc.

et al

Defendant: Maurine Hagan, Kent W. Hagan, CJA and Associates, Inc., Hagan & Hagan and Hagan Chiropractic, Inc.

Plaintiff: Kinsale Insurance Company

Case Number: 3:2013cv05303

Filed: November 14, 2013

Court: California Northern District Court Office: San Francisco Office

Lance Wallach

Lance Wallach

Abusive tax shelters, 419, section 79, 412i micro captive insurance, VEBA, expert witness, author, speaker

DJ@***.GOV writes:

Mr. Wallach,

Thank you for taking the time to speak with xxxx and I this morning.

As we indicated during our telephone call, we may be interested in using you as a consultant in connection with the prosecution of our civil case against Mr Accordingly, we would like to set up a time later this week to discuss this matter with you in more detail. What about Thursday afternoon? Also, we may wish to share documents and other information with you about our case on a confidential basis. In that regard, attached please find our standard confidentiality agreement.

If it is acceptable to you, please sign and return the signed copy to me by email dj@***.gov) Thank you again for expressing an interest in assisting us.

Please call me o Senior Trial Counsel Enforcement Division U.S. Securities and Exchange Commission @***.gov

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For help with CJA & Associates and 412i, 419, and other abusive plans contact Lance Wallach at lawallach@***.com or call 516-938-****. Lance Wallach is the leading expert on 412i, 419, Section 79 and Captive Insurance Plans.

Lance has helped hundreds of people resolve their problems and get all their money back, usually without a lawsuit. Google Lance Wallach and see why CJA & Associates, insurance companies, and the IRS do not want to fight with Lance Wallach.

CLASS ACTION FILED AGAINST CJA AND ASSOCIATES AND FIDELITY SECURITY LIFE

CONTACT US Name: * Email: * Check here to receive email updates Subject: * Message: * Submit Enter text Enter text Enter text LANCE WALLACH EXPERT WITNESS CJA.TAX © COPYRIGHT Class Action Filed against CJA and Associates and Fidelity Security Life Hartford, CT: A consumer fraud class action lawsuit has been filed against Chicago-based CJA and Associates and Kansas City, Missouri-based Fidelity Security Life Insurance Company (FSL). The lawsuit alleges that CJA and FSL breached fiduciary duties in duping small business owners into investing millions of dollars of employee retirement benefit money in FSL annuities when up to 95% of the initial money invested was being siphoned off in commissions and fees.

The so-called Section 412 (e)(3) plans are under attack from the IRS as illegitimate attempts to avoid federal taxes. The lawsuit alleges that by advising investment in these plans CJA and FSL breached federal laws governing advice given to employee benefit plans.

Ray Ankner is truly a shadyn character, fraud, tax evasion, gettin g away with it for decades. Owed mucho $ to our frie d for decades while he was living it up in multiple homes in Naples and Chicago.

Took his time over decades until our friend was i his 90s for this criminal to finally pay him back. It's a woner thgis man hasn't gone to prison for any of his white collar crimes.

Yep CJA is being sued by a bunch of its customers

Just google their CEO

Raymond Ankner and see his history of ripping people off for years

Run from these people and don't buy anything they are selling!!

Class Action Filed against CJA and Associates and Fidelity Security Life

Hartford, CT: A consumer fraud class action lawsuit has been filed against Chicago-based CJA and Associates and Kansas City, Missouri-based Fidelity Security Life Insurance Company (FSL).

The lawsuit alleges that CJA and FSL breached fiduciary duties in duping small business owners into investing millions of dollars of employee retirement benefit money in FSL annuities when up to 95% of the initial money invested was being siphoned off in commissions and fees.

The so-called Section 412 (e)(3) plans are under attack from the IRS as illegitimate attempts to avoid federal taxes.

The lawsuit alleges that by advising investment in these plans CJA and FSL breached federal laws governing advice given to employee benefit plans.

Plaintiffs are represented by Moukawsher & Walsh, LLC.

CJA and FSL Breach of Fiduciary Duties Class Action Legal Help If you or a loved one has suffered damages in this case, please click the link below and your complaint will be sent to a lawyer who may evaluate your claim at no cost or obligation.

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Lance Wallach

Lance Wallach Business Owner at National Offices of Lance Wallach "Niche" "Bisys" "Veba" "Doug Williams" "arch bonnema" "steve toth" "captive insurance" "michael sonnenberg" "ron snyder" "brian cave" "benistar" "norm bevan" "doug williams" " williams coulson" "dennis cunning" "phil rowe" "sadi trust" "beta plan" "millennium plan" "grist mill trust" "compass welfare benefit plan" "sea nine" "professional benefits trust" "integrity 419" "integrity benefit plan" "veba plan" "sterling 419" "judy carsrud" By Lance Wallach October 23, 2010 Welfare benefit plans (419), 412i, captive insurance and Section 79 plans are under intense IRS scrutiny and no matter what plan you were in, you surely need help now. The IRS has been cracking down on 419, 412i, listed transactions and virtually all plans, making it difficult for anyone who has been involved with one of these plans.

Listed below are some of the companies and names of salesmen,and others that you may recognize. Plan Names: Niche BiSYS Veba Benistar SADI trust Beta plan Millennium plan Grist Mill trust Compass welfare benefit plan Sea Nine veba Professional Benefits Trust Integrity 419 Integrity Benefit Plan Veba Plan Sterling 419 People, law firms, etc., affiliated with plans: Doug Williams Arch Bonnema Steve Toth Michael Sonnenberg Ron Snyder Brian Cave Norman Bevan Dennis Cunning Williams Coulson Phil Rowe Judy Carsrud Michael Lloyd Greeberg Tarig If you need help getting out of a plan, redoing a plan, or reviewing a plan, we can help you. We have written books about the subject, given hundreds of lectures and have worked on these problems for many years. Our team includes ex-IRS agents, tax attorneys, CPAs, Erisa attorneys and others substantially knowledgeable about these plans.

We have helped many others with these problems and look forward to helping you. LikedUnlikehow to get auditedCommentShareShare how to get audited Lance Wallach Lance Wallach Business Owner at National Offices of Lance Wallach 645 articles

Captive Insurance and Section 79 Scams, 419e and 412i Producing Large IRS fines

Posted on November 5, 2007 by admin

October 11, 2010

By Lance Wallach

Have you ever heard of captive insurance, a 419 welfare benefit plan, a 412i defined benefit insurance plan or a Section 79 scam? You may have a client in one, or be in one yourself and not even know it.

You would learn quickly when the IRS disallows your tax deduction and tries to fine you lots of money. What you are about to read about below may seem impossible in America. The IRS first audits, disallows deductions, and charges interest and penalties for being in one of these abusive plans. You then think you are finished with them.

Soon thereafter, you get fined hundreds of thousand of dollars for not reporting yourself to the IRS. I have been helping successful business owners and professionals with this problem for years. I have authored numerous books for the American Institute of CPAs with chapters on this problem.

I have spoken at many conventions on this topic and argued with a lot of people who didn’t think this would ever happen to them. They purchased products sold primarily by insurance agents from large well known insurance companies like Prudential, Pacific Life, Mass Mutual, Guardian, American General, etc.

The plans had opinion letters from lawyers. The business owner’s accountants signed tax returns taking deductions for these plans with insurance products. Why are the business owners and professionals being fined a huge amount of money by various divisions of the IRS for doing what seemed like a legitimate thing to do? How can something like this happen in America?

When many of the business owners and accountants finally take their heads out of the sand, they are usually put out of business by these fines. Years ago, most successful insurance agents were making big money selling 419 and 412i plans. Now they are selling captive insurance and Section 79 scams to unsuspecting business owners and professionals. Most of the plans were sold to successful business owners as plans with large tax deductions where money would grow tax free until needed, whether in retirement or sooner.

I frequently spoke at national accounting and other conventions talking about the problems with most of these plans. I would be attacked by some attendees who where making large insurance commissions selling the plans. I would try to warn insurance company home office executives, but they too had their heads in the sand because of all the money these plans brought in. Now they look foolish when their depositions in the lawsuits are taken.

Later, the IRS got tough and started fining the unsuspecting business owners and professionals hundreds of thousands a year for not reporting on themselves for being in these plans. The agents and insurance companies would advise not to report to the IRS, “This is a good plan. We have approval.” Not only were the business owners fined under IRS Code 6707A, but the insurance agents were also fined 0,000 for not reporting on themselves. Accountants who signed tax returns are even being fined 0,000 by the IRS.

Then the business owners sue the accountants, insurance agents, etc.

I have been following these scenarios for a long time. In fact, I have been an expert witness in many of these cases, and my side has never lost.

Captive Insurance Plans _Dirty Dozen

Thursday, November 17, 2016

CJA and associates 419 412i section 79 scam audits lawsuits Review 300240 Oct 24, New York City, New York, Life Insurance @ Pissed Consumer

CJA and associates 419 412i section 79 scam audits lawsuits Review 300240 Oct 24, New York City, New York, Life Insurance @ Pissed Consumer

Posted by Lance Wallach at 6:19 AM No comments:

Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest Wednesday, November 16, 2016 Captive Insurance_I told You So_The IRS is Looking For You As I have been warning for the last few years some captive insurance plans are being looked at and audited.

If you are in a captive, which may be legal, you still may have to file under IRS 6707A. Most people who file do it wrong and then you have compounded the problem by lying to the IRS. Make one mistake on the forms and you have another problem. On November 1, 2016, the Internal Revenue Service (“IRS”) issued Notice 2016-66 identifying certain transactions relating to small captive insurance companies as a “transaction of interest.” Prior to this notice, the IRS had identified certain small captives as amongst its list of “Dirty Dozen Tax Scams.” Also, the IRS has been actively examining captives and their owners and litigating cases in the U.S.

Tax Court. The new “transaction of interest” designation throws small captive insurance company transactions into a tax reporting regime that can potentially lead to significant penalties and IRS income tax and promoter examinations. Under section 831(b) of the Internal Revenue Code (the “Code”), so-called small or “micro” captives can elect to exclude from income up to $1.2 million of premiums received ($2.2 million beginning in 2017) and only pay tax on their investment income. Also, the premiums are deducted by the insured as a business expense under section 162 of the Code.

Notice 2016-66 states that small captives have the potential for tax avoidance or evasion and identifies certain small captives, and substantially similar transactions, as a “transaction of interest” in order to gather more information about why and how small captives are being formed and operated. Generally, small captives that constitute a “transaction of interest” are those that (1) have liabilities for covered losses and expenses in an amount less than 70 percent of the total premiums earned, or (2) provide premium payments as financing to an insured or related party in a transaction nontaxable to the recipient (e.g., loans). In either case, the period tested is the most recent 5-year taxable period. Each of the insureds, captives, and any material advisors must report the transaction to the IRS, including the IRS Office of Tax Shelter Analysis.

Taxpayers will have to report the small captive “transaction of interest” annually by filing a Form 8886 with their tax returns beginning with the 2016 tax year, and will have to report separate Forms 8886 for each prior year, some forms due by January 30, 2017. See Treas. Reg. § 1.6011-4(e)(2)(i).

Under section 6707A, each unfiled or late-filed Form 8886 is subject to a penalty in the amount of $50,000 or $10,000 for natural persons. Material advisors must also report the transaction of interest by filing Form 8918 (and are subject to additional list maintenance requirements). Under section 6707, an unfiled or late-filed Form 8918 is subject to a penalty in the amount of $50,000 (and further penalties for failure to timely supply the required list to the IRS upon request). According to the Notice, retroactive reporting is required for described captives that were formed on or after November 2, 2006 (not 2016), which is the date the “transaction of interest” regulations first went into effect.

A material advisor could be the seller, insuarance agent or the accountant who files your tax return, etc. Finally, the Notice requires that transaction participants provide detailed information on the relevant disclosure forms. The disclosure information includes (1) whether liabilities incurred are less than 70 percent of premiums (minus certain dividends and loans); (2) whether any loan or other financing arrangement has occurred between the captive and related parties; (3) the captive’s jurisdiction; (4) a description of the types of coverage(s); (5) how the premium(s) was/were determined, including the names and contact information for any actuary or underwriter involved; (6) a description of the claims paid; and (7) a description of the captive’s assets. This detailed information should not be taken lightly as the IRS can treat an incomplete disclosure as nondisclosure and therefore, subject to penalties.

Lance Wallach Ph.: (516)938-**** Fax: (516)938-**** www.vebaplan.com National Society of Accountants Speaker of The Year 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. Posted by Lance Wallach at 11:23 AM No comments: Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest Labels: 831 (b), captive insurance, captive insurance plans, form 8886 Captive Insurance Companies Association ("CICA") The Captive Insurance Companies Association ("CICA"), a trade association representing the captive insurance industry, has issued a statement on section 831(b) companies with cautionary language: The traditional captive insurance company industry and CICA are extremely concerned about the misuse of small captives utilizing the IRC 831(b) election and the attendant publicity about "captives" being a tax avoidance device.

Although there is nothing wrong with the utilization of the 831(b) election when a small captive insurance company is truly engaged in insuring the risk of its parent company/owner(s), the traditional captive insurance industry strongly opposes the utilization of small 831(b) captives primarily for tax sheltering purposes. In simple language, do 831(b)s right or don't do them at all!

Section 79 Plans

Your Best Resource for Section 79 Questions, Problems, Information

516-938-****

You WILL Be Audited For Your Section 79 Plan

Section 79 plans, listed transactions, reportable transactions, 419e, 412i, and captive insurance plans are all targets of IRS Auditors. Do you know the ins and outs of these plans enough to protect yourself or clients?

We do, and we can help you too. You WILL be audited. It's just a matter of when. You need help and you need it now.

Educate yourself here, then call for assistance. Your finances are at risk if you put off dealing with this problem. Call 516-935-**** to speak with an expert today. National Office 516-938-**** Email: section79expert ReportableTransactions ListedTransactions Taxaudit419 Taxlibrary.us Irsform8886 irs6707Apenalty section79expert Late breaking news: Large 419 plan files for Bankruptcy.

Recent court cases and other developments have highlighted serious problems in plans, popularly know as Benistar, issued by Nova Benefit Plans of Simsbury, Connecticut. Recently unsealed IRS criminal case information now raises concerns with other plans as well. If you have any type plan issued by NOVA Benefit Plans U.S. Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service or Benistar, get help at once.

You may be subject to an audit or in some cases, criminal prosecution. On November 17th, 59 pages of search warrant materials were unsealed in the Nova Benefit Plans litigation currently pending in the U.S. District Court for the District of Connecticut. According to these documents, the IRS believes that Nova is involved in a significant criminal conspiracy involving the crimes of Conspiracy to Impede the IRS and Assisting in the Preparation of False Income Tax Returns.

Read the rest of the breaking news article here: Large 419 plan files for Bankruptcy IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A By Lance Wallach Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble. In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as listed transactions." These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions. In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction.

But you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do you have to file Form 8886, but it also has to be prepared correctly. I only know of two people in the U.

S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filling.

Most people file late and follow the directions for currently preparing the forms. Then the IRS fines the business owner. The tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS. Read more here Breaking News: Don't Become A Material Advisor Accountants, insurance professionals and others need to be careful that they don’t become what the IRS calls material advisors.

If they sell or give advice, or sign tax returns for abusive, listed or similar plans; they risk a minimum $100,000 fine. Their client will then probably sue them after having dealt with the IRS. In 2010, the IRS raided the offices of Benistar in Simsbury, Conn., and seized the retirement benefit plan administration firm’s files and records. In McGehee Family Clinic, the Tax Court ruled that a clinic and shareholder’s investment in an employee benefit plan marketed under the name “Benistar” was a listed transaction because it was substantially similar to the transaction described in Notice 95-34 (1***-* C.B.

309). This is at least the second case in which the court has ruled against the Benistar welfare benefit plan, by denominating it a listed transaction. The McGehee Family Clinic enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886, Reportable Transaction Disclosure Statement, or similar disclosure.

The IRS disallowed the latter deduction and adjusted the 2004 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. Click here to read more. Plan administrators frustrated with IRS attacks on 412i, 419e plans IRS Auditing 412(i) Plans Our tax resolution offices have received calls regarding the following companies or plans: CJA, CJA and Associates Information You Need to Know Section 79 and captive insurance plans with life insurance in them are being looked at by the IRS. We have received calls from people that are being audited.

- The dangers of being "listed" - A warning for 419, 412i, Sec.79 and captive insurance. Accounting Today: October 25, 2010, By: Lance Wallach Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble. To Read More: Offshore International Today Aug 2011 You may want to think about participation in the IRS’ offshore tax amnesty program (called the Offshore Voluntary Disclosure Initiative). Do you want to play audit roulette with the IRS?

Some clients think they are too small to be prosecuted. They are wrong. To the average businessperson, only the guys with tens of millions secretly stashed in Swiss bank accounts get prosecuted. Don't tell that to Michael Schiavo.

He was just prosecuted for hiding money in a Swiss account back in 2003. How much money does the IRS say he hid? A whopping $90,000. That’s it.

But wait, there is more to the story. Schiavo attempted to do a quiet disclosure during the 2009 amnesty but instead of filling out the amnesty paperwork, he simply trusted that by coming forward voluntarily he could avoid criminal prosecution. He was wrong on all counts. Nothing is too small for the IRS, and nothing is too old.

“So, to save a whopping $40,624 in taxes, this guy risked a felony conviction and prison time, not to mention steep penalties that could very easily eat up the entire $90,000, and also his criminal and civil defense costs. The smart taxpayers are the ones coming forward and not having to look over their shoulders for the next 10 years. Time is running out. The tax amnesty runs through August but it takes at least days to jump through all the hoops.

We will also fight hard to reduce the penalties down even more. Remember, the IRS can go as low as 5%. Don’t want this to happen to you? Visit taxadvisorexpert.com today!

Copyright (C) 2014 Lance Wallach All rights reserved Most people have never heard of a Section 79 Plan, because it is a wealth building tool pitched by insurance agents who really do not understand the math behind the plan. National Office 516-938-**** Email: section79expert July The Newspaper of the NYSSCPA Vol. 10, No.13 ________________________________________ By Lance Wallach, CLU, ChFC, CIMC, and Ron Snyder, JD, EA Following the U.S. Congress’ lead, on April 10 the IRS issued final regulations under Section 409A of the Internal Revenue Code.

If the rules seemed unclear before, they are crystal clear now: Most of the so-called “419(e)” plans as well as the remaining 419A(f)(6) plans are in violation of the law and subject to hefty penalties.

A 419(e) plan is a benefit plan that generally seeks to make the purchase of life insurance tax-deductible to employers. While the concept is appealing, most of the existing arrangements have permitted the plans to transfer the insurance policies to the participants upon retirement.

419 Insurance Welfare Benefit Plans Continue to Get Accountants in Trouble

________________________________________

February 6, 2012 By Lance Wallach, CLU, CHFC

________________________________________

Popular so-called "419 Insurance Welfare Benefit Plans," sold by most insurance professionals, are getting accountants and their clients into more and more trouble. A CPA who is approached by a client about one of the abusive arrangements and/or situations to be described and discussed in this article must exercise the utmost degree of caution, not only on behalf of the client, but for his/her own good as well.

The National Conference of CPA Practitioners - By Lance Wallach The penalties noted in this article can also be applied to practitioners who prepare and/or sign returns that fail to properly disclose listed transactions, including those discussed herein.

On Oct. 17, 2007, the IRS issued Notice 2007-83, Notice 2007-84, and Revenue Ruling 2007-65. Notice 2007-83 essentially lists the characteristics of welfare benefit plans that the Service regards as listed transactions. Put simply, to be a listed transaction, a plan cannot rely on the union exception set forth in IRC Section 419A(f)(5),there must be cash value life insurance within the plan and excessive tax deductions for life insurance, in excess of what may be permitted by Sections 419 and 419A, must have been claimed.

In Notice 2007-84, the Service expressed concern with plans that provide all or a substantial portion of benefits to owners and/or key and highly compensated employees. The notice identified numerous specific concerns, among them: 1. The granting of loans to participants; 2. Providing deferred compensation; 3.

Plan terminations that result in the distribution of assets rather than being used post-retirement, as originally established; and 4. Permitting the transfer of life insurance policies to participants. Alternative tax treatment may well be in the offing for such arrangements, as the IRS intends to re-characterize such arrangements as dividends, non-qualified deferred compensation (under IRC Section 404(a)(5) or Section 409A), split-dollar life insurance arrangements, or disqualified benefits pursuant to Section 4976. Taxpayers participating in these listed transactions should have, in most cases, already disclosed such participation to the Service.

Those who have not should do so at the earliest possible moment. Failure to disclose can result in severe penalties – up to $100,000 for individuals and $200,000 for corporations. Finally, Revenue Ruling 2007-65 focused on 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), 419A (f)(6), and 419 plans.

Life insurance premiums are not inherently tax deductible and authority must be found in Section 79 to justify such a deduction. Section 264(a), in fact, specifically disallows tax deductions for life insurance, at least in some cases. And moreover, the Service declared, interposition of a trust does not change the nature of the transaction. 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 more than 50 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 the 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@***.com or visit www.taxadvisorexpert.com.

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.

http://section79plan.org

Where can I get Help with Section 79 Plan Problem?

Hello, I'm Lance Wallach...the leading authority in helping

people with Section 79 Plan Problems.

Google "Lance Wallach Section 79" for proof!

For free 15 minute phone consultation call me at: 516-938-**** and make the Section 79 Plan Problem go away

IRS audits 419 plans, IRS raids Benistar, Nova, Grist Mill Trust

________________________________________

April 24, 2012 By Lance Wallach, CLU, CHFC

________________________________________

IRS raided Nova, Benistar, Grist Mill Trust taking records etc. IRS is now auditing this 419 plan. As a result lawsuits against insurance agents, insurance cos. etc are resulting.

419 Life Insurance Plans and Other Scams – Large IRS Fines –

The IRS Raids Plan Promoter Benistar, and What Does All This Mean To You?

October 13,

Recently IRS raided Benistar, which is also known as the Grist Mill Trust, the promoter and operator of one of the better known and more heavily scrutinized of the Section 419 life insurance plans. IRS attacked the Benistar 419 plan, and one of its tactics was to demand the names of all the clients Benistar worked with — so they could be audited by the IRS, Benistar refused to give the names and actually appealed the decision to turn over the names. The appeal was unsuccessful, but Benistar officials still refused to give up the names. Recently, the IRS raided the Benistar office and took hundreds of boxes of information, which included information on clients who were in their 419 plan. In documents filed by Benistar itself, they stated that 35 to 50 armed IRS agents descended upon their office to seize documents.

IRS has visited, and is still visiting most of the other plans and obtaining names of participants, selling insurance agents, accountants, etc. They have a whole task force devoted to auditing 419, 412i and other abusive plans.

It’s important to understand what could happen to unsuspecting business owners if they get involved in plans that are not above board. Their names could be turned over to the IRS, where audits could ensue, and where the outcome could be the payment of back taxes and significant penalties. Then they would be fined another time under Section 6707A for not properly reporting on themselves.

Most 419 life insurance and 412i defined benefit pension plans were sold to successful business owners as plans with large tax deductions where money would grow tax free until needed in retirement. I would speak at national accounting and other conventions talking about the problems with most of these plans. I would be attacked by some attendees who where making large insurance commissions selling the plans. I would try to warn insurance company home office executives, but they too had their heads in the sand because of all the money these plans brought in. Then the IRS got tough and started fining the unsuspecting business owners hundreds of thousands a year for not reporting on themselves for being in the plan. The agents and insurance companies advise against filing. “This is a good plan. We have approval.” Not only were the business owners fined under IRS Code 6707A, but the insurance agents were also fined $100,000 for not reporting on themselves. Accountants who signed tax returns are even being fined 100,000 by IRS. Then the business owners sue the accountants, insurance agents, etc. I have been following these scenarios for a long time. In fact, I have been an expert witness in many of these cases, and my side has never lost.

Most promoters of 419 plans told clients that their plans complied with the laws and, therefore, were not listed tax transactions. Unfortunately, the IRS doesn’t care what a promoter of a tax-avoidance plan says; it makes its own determination and punishes those who don’t comply.

The McGehee Family Clinic, P.A. was recently hit with back taxes and a penalty under Code Sec. 666A in conjunction with a deduction to the Benistar 419 plan

Dr. McGehee's clinic took a deduction for a 419 plan (the Benistar plan) back in 2005. Eventually, the McGhee Family Clinic was audited. After the audit, the doctor was told that the deduction would be disallowed and that back taxes were due. Additionally, Dr. McGehee was hit with a 20 percent accuracy-related penalty under Code Sec. 6662A. Finally, the tax court sustained the IRS's determination that McGehee was subject to the increased 30 percent penalty, because its return did not include a disclosure statement indicating its participation in the Benistar Trust. I think that in addition to the aforementioned fines, IRS will now fine him, both on a corporate and personal level, another $200,000 or more, under IRC 6707A, for not properly disclosing his participation in a listed transaction. There was a moratorium on those fines until June 2010, pending new legislation to reduce them. The fines had been 200,000 per year on the corporate level and $100,000 per year on the personal level. You got the fine even if you made no contributions for the year. All you had to do was to be in the plan. So Dr. McGehee's fine would be a total of $300,000 per year for every year that he and his corporation were in the plan. IRS also says the fine is not appealable. His fine would be in the million-dollar range and it would be in addition to the back taxes, interest, and penalties already discussed earlier in this paragraph.

Legislation just passed slightly reducing those fines, but you still have to properly file to start the Statute of Limitations running to avoid the fines. IRS is fining people who report on themselves, but make a mistake on the forms. Now that the moratorium on the fines has passed, and so has the new legislation, IRS has aggressively moved to fine unsuspecting business owners hundreds of thousands. This is usually after they get audited, and sometimes reach agreement with IRS. Then another division or department of the IRS imposes a fine under 6707A. I am receiving a lot of phone calls from business owners who this is happening to. Unfortunately, some of these people already had called me. I warned them to properly file under 6707A. Either they did not believe me - it is unbelievable - or their accountant or tax attorney filed incorrectly. Then they called again after being fined.

As an expert witness lance wallach has never lost a case cja benistar grist mill turst sadi trust nova trust benistar

412(e)(3) Plans and Annuities

A 412(e)(3) plan is a tax-qualified, defined benefit pension plan that is funded with either annuities or a combination of annuities and life insurance. These sorts of plans are most often funded through annuities, and those annuities have come to be known as 412(e)(3) annuities, because of the section of the Internal Revenue Code that authorizes this sort of plan.

Such 412(e)(3) plans are normally marketed to small businesses as vehicles that can provide large income tax deductions in connection with the establishment or continued funding of a pension plan. The annuities used to fund such a plan often are priced upon low assumed rates of return and other actuarial factors, which means that the employer is required to contribute a larger amount of money up front to fund the plan, and that in turn provides employers with larger tax deductions for their business.

The Lawsuit

The plaintiffs are two small Connecticut businesses that purchased 412(e)(3) annuities from defendant Fidelity Security Life (“FSL”), a Kansas City-based insurance company. Plaintiffs also named as a defendant CJA Associates, Inc., a corporation that is a registered agent of FSL, and is alleged to have promoted the sale of the annuities, and First Actuarial Corporation (“FAC”), a wholly owned subsidiary of CJA that is alleged to have been the sponsor of the plans. In addition, the complaint names an individual who is a registered agent of FSL and is alleged to have served as a tax and investment advisor to the two plaintiff businesses (the complaint also alleges that he was recently indicted by a grand jury for income tax fraud, but does not allege if it was related to his conduct in this case).

All of the non-FSL defendants are alleged to have had some role in the sales process.

Both of the plaintiffs purchased 412(e)(3) annuities from FSL, allegedly as part of the promotional efforts of CJA. Plaintiffs allege that one of the two plaintiffs had their income tax deductions associated with the plans disallowed.

There are no allegations about the tax treatment of the income tax deductions of the second plaintiff, but we assume from that omission that its tax deductions have not been disallowed or challenged.

Plaintiffs contend that the FSL annuities were inappropriate and unsuitable for defined benefit retirement plans for two main reasons. First, plaintiffs contend that the loads used to pay commissions associated with the annuities -- which they claim amounted to 95% of the first year’s contributions and various percentages later on -- were excessive when compared to other annuity products “readily available in the marketplace that achieved the same goals.” The complaint alleges that two other prominent insurance companies were offering comparable yielding annuities with no upfront loads or fees and had their total commissions built into the structure of the product “within the industry standard of 5-6%.” Second, plaintiffs contend that the principal advantage of the product -- its ability to generate large income tax deductions -- was illusory because the employer’s c As an expert witness lance wallach has never lost a case google lance wallach who is all over the net and google your expert who would you pick???

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Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

By Lance Wallach May 14, 2008

Every accountant knows that increased cash flow and cost savings are critical for businesses in 2008. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS code section 831(b). When properly designed, a business can make tax-deductible premium payments to a related-party insurance company. Depending on circumstances, underwriting profits, if any, can be paid out to the owners as dividends, and profits from liquidation of the company may be taxed as capital gains.

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. 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.

National Society of Accountants

Hartford, CT: A consumer fraud class action lawsuit has been filed against Chicago-based CJA and Associates and Kansas City, Missouri-based Fidelity Security Life Insurance Company (FSL).

The lawsuit alleges that CJA and FSL breached fiduciary duties in duping small business owners into investing millions of dollars of employee retirement benefit money in FSL annuities when up to 95% of the initial money invested was being siphoned off in commissions and fees.

The so-called Section 412 (e)(3) plans are under attack from the IRS as illegitimate attempts to avoid federal taxes. The lawsuit alleges that by advising investment in these plans CJA and FSL breached federal laws governing advice given to employee benefit plans.