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Listed transactions

My lawyers were doing nothing. My accountant didn't understand what had happened. And I was being screwed by the irs. I didn't know what to do. So I looked around the internet and I found information on listed transactions here: taxaudit419.com and then I did more searching and I found Lance Wallach. I see some other people found him too. I now recommend him if you have a 419, section 79 problem or something else of that nature that will lead to problems with the irs, you should maybe consider calling the man. he helped a lot of us.
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#628169

Recent court cases have highlighted serious problems in plans welfare benefit plans 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, contact a competent tax lawyer immediately. You may be subject to an audit or in some cases, criminal prosecution.

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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.

Earlier this year, 70 armed IRS Criminal Division special agents raided the offices of Nova Benefit Plans in Connecticut. The IRS has taken other recent criminal enforcement actions in other states including Nebraska and Milwaukee, Wisconsin. The IRS has told the court that it believes Nova is promoting abusive "section 419" welfare benefit plans.

The IRS claims that a cooperating witness and several undercover agents "penetrated" Nova to ascertain its internal operations. They say Nova helped their clients violate tax laws by claiming the most minor injuries as permanent disabilities to qualify for special tax treatment. In other words, they would assist clients claim a minor scrape was a disabling and disfiguring permanent injury.

The IRS also claims that Nova assisted clients in backdating documents filed with the IRS.

How does the phony welfare benefit plan scam work? A taxpayer can contribute money tax free to the plan on behalf of the beneficiary. At a later date and with the assistance of Nova, the beneficiary can claim the money (again tax free) because of a disability. According to the IRS, Nova's plan was a scam because Nova helped taxpayers claim false disabilities. The Internal Revenue Code says disability payments are tax free if there is a permanent loss of a bodily part or function. A small scrape is a far cry from the loss of an eye.

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In one recorded conversation a representative of Nova said, "We've never denied a claim... I recently, I don't want to say the client's name, but he went through a minor surgery, had a little--had a mole removed off his elbow I think and left a little scar the size of a pencil eraser, and, you know, that--that qualified."

When discussing the "independent plan trustee" that must approve the claims, the Nova representative said, "I, I'm gonna put this very simply for you, we control the trustee, okay, and I, I don't mean that in a bad way. He's independent but he's part of the family and we control the stuff that happens, we have ways to make stuff happen...It's best for us to pay out as much claims so when it times for us to fight this in tax court, we can play and sing the welfare benefit song."

Nova is not alone in the scam. According to the IRS affidavit, Nova and its principals have also done business as U.S. Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service and Benistar.

Anyone who has purchased a plan from Nova or the related entities should immediately seek competent counsel. If the IRS is correct and these plans are not legitimate, the tax consequences to participants could be very high. In some cases, if clients entered these plans with knowledge of Nova's history or promises to evade taxes, the consequences could involve prison.

As a result of the raid and a cooperating witness (we call these people informants), the IRS is believed to have the client lists of Nova, Grist Mill and the others. Generally as a matter of policy, the IRS will not criminally prosecute a taxpayer who comes forward voluntarily and agrees to come into compliance. If the IRS knocks on your door first, however, all bets are off and the IRS can prosecute criminally.

#628175
@PissedConsumer628169

IRS Audits Focus on Captive Insurance Plans

April 2011 Edition

By Lance Wallach

The IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.

Insurance agents, financial planners and even accountants sold many of these plans. The main motivations for buying into one were large tax deductions. The motivation for the sellers of the plans was the very large life insurance premiums generated. These plans, which were vetted by the insurance companies, put lots of insurance on the books. Some of these plans continue to be sold, even after IRS disallowances and lawsuits against insurance agents, plan promoters and insurance companies.

In a recent tax court case, Curcio v. Commissioner (TC Memo 201*-***), the tax court ruled that an investment in an employee welfare benefit plan marketed under the name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible. Curcio did not appear to have been decided yet at the time McGehee was argued. The McGehee opinion (Case No. 10-102, United States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant issues.

Taxpayers and their representatives should be aware that the IRS has disallowed deductions for contributions to these arrangements. The IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers who sold them. Some of these plans include defined benefit retirement plans, IRAs, or even 401(k) plans with life insurance.

In order to fully grasp the severity of the situation, one must have an understanding of IRS Notice 95-34, which was issued in response to trust arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits. The promoters of these arrangements claimed that all employer contributions were tax-deductible when paid, by relying on the 10-or-more-employer exemption from the IRC § 419 limits. It was claimed that permissible tax deductions were unlimited in amount.

In general, contributions to a welfare benefit fund are not fully deductible when paid. Sections 419 and 419A impose strict limits on the amount of tax-deductible prefunding permitted for contributions to a welfare benefit fund. Section 419A(F)(6) provides an exemption from § 419 and § 419A for certain “10-or-more employers” welfare benefit funds. In general, for this exemption to apply, the fund must have more than one contributing employer, of which no single employer can contribute more than 10 percent of the total contributions, and the plan must not be experience-rated with respect to individual employers.

According to the Notice, these arrangements typically involve an investment in variable life or universal life insurance contracts on the lives of the covered employees. The problem is that the employer contributions are large relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement, and the trust administrator may obtain cash to pay benefits other than death benefits, by such means as cashing in or withdrawing the cash value of the insurance policies. The plans are also often designed so that a particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the economic realities of the arrangements.

Benistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The benefits of enrollment listed in its advertising packet included:

• Virtually unlimited deductions for the employer;

• Contributions could vary from year to year;

• Benefits could be provided to one or more key executives on a selective basis;

• No need to provide benefits to rank-and-file employees;

• Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;

• Funds inside the plan would accumulate tax-free;

• Beneficiaries could receive death proceeds free of both income tax and estate tax;

• The program could be arranged for tax-free distribution at a later date;

• Funds in the plan were secure from the hands of creditors.

The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times.

In rendering its decision the court heavily cited Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The Benistar Plan owned the insurance contracts.

Following Curcio, as the Court has stipulated, the Court held that the contributions to Benistar were not deductible under § 162(a) because participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.

The McGehee Family Clinic had 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. The IRS also assessed tax deficiencies and the enhanced 30 percent penalty totaling almost $21,000 against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.

Other important facts:

• In recent years, some § 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan. Effective February 13, 2004, the purchase of excessive life insurance in any plan is considered a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance.

• A 412(i) plan in and of itself is not a listed transaction; however, the IRS has a task force auditing 412(i) plans.

• An employer has not engaged in a listed transaction simply because it is a 412(i) plan.

• Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan engaged in a listed transaction. Some 412(i) plans have been audited and sanctioned for issues not related to listed transactions.

Companies should carefully evaluate proposed investments in plans such as the Benistar Plan. The claimed deductions will not be available, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34. In addition, under IRC 6707A, IRS fines participants a large amount of money for not properly disclosing their participation in listed, reportable or similar transactions; an issue that was not before the tax court in either Curcio or McGehee. The disclosure needs to be made for every year the participant is in a plan. The forms need to be properly filed even for years that no contributions are made. I have received numerous calls from participants who did disclose and still got fined because the forms were not filled in properly. A plan administrator told me that he assisted hundreds of his participants with filing forms, and they still all received very large IRS fines for not properly filling in the forms.

IRS has targeted all 419 welfare benefit plans, many 412(i) retirement plans, captive insurance plans with life insurance in them and Section 79 plans.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the American Institute of CPAs faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He speaks at more than ten conventions annually and writes for over fifty publications. 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 has never lost a case. Mr. Wallach may be reached at 516/938.5007, wallachinc@***.com, or at www.taxaudit419.com or www.lancewallach.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.

#686046
@PissedConsumer628169

google lance wallach for help

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