Showing posts with label Captive Insurance problems. Show all posts
Showing posts with label Captive Insurance problems. Show all posts
Captive Insurance
Most accountants and small business owners are unfamiliar with a great way to reduce taxes and expenses. By either creating or sharing "a captive insurance company", substantial tax and cost savings willbenefit the small business owner. Over 80% of Fortune 500 companies take advantage of some kind of captive insurance company arrangement. They set up their own insurance companies to provide coverage when they think outside insurers are charging too much, or coverage is simply unavailable. The parentcompany creates a captive so that it has a self-financing option for buying insurance. The captive then either retains the risk of providing insurance or pays reinsurers (companies that reinsure insurers) to take the risk.
Captive Insurance Plans, Want to Get Audited? - HG.org
Captive Insurance Plans, Want to Get Audited? - HG.org
When one scheme fails it isn’t long before a resourceful promoter comes up with a different product. Inevitably promoters find some lawyer or accountant to draft a favorable opinion letter and a new industry is born. In a few years, however, the IRS catches up and declares the arrangement to be a listed transaction and abusive tax shelter. As an expert witness I have never lost a case in this field. It is easy to beat the deep pockets of the insurance companies who provide product to these plans. Even though they have business owners sign fraudulent disclaimers saying that the owners will get their own tax advice. These disclaimers are then used when the inevitable happens, the IRS audits and the business owner sues the insurance company.
The latest entries seeking to find a way to make life insurance premiums deductible is a small business captive insurance company or CIC.
The insurance industry have been conjuring ways to make life insurance premiums tax deductible. Over the years we have seen many schemes that have failed IRS scrutiny. Welfare benefit plans set up under I.R.C. section 419, 412(e) plans and Producer Owned Reinsurance Companies (PORCs) are all common examples.
When one scheme fails it isn’t long before a resourceful promoter comes up with a different product. Inevitably promoters find some lawyer or accountant to draft a favorable opinion letter and a new industry is born. In a few years, however, the IRS catches up and declares the arrangement to be a listed transaction and abusive tax shelter. As an expert witness I have never lost a case in this field. It is easy to beat the deep pockets of the insurance companies who provide product to these plans. Even though they have business owners sign fraudulent disclaimers saying that the owners will get their own tax advice. These disclaimers are then used when the inevitable happens, the IRS audits and the business owner sues the insurance company.
The latest entries seeking to find a way to make life insurance premiums deductible is a small business captive insurance company or CIC.
Before you buy you should know section 79 Plan history
Section 79 Scams and Captive Insurance HistoryWhen trying to understand how a product becomes a target of government scrutiny it helps to know its history.
In the case of plans that fall under Internal Revenue Code Section 79, that history is complex.
Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and
others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the
unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition
to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate
the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in
accomplishing this.
After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen
problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC
6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine. In
essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or
evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and
done every year that you are in the plan in any way at all, even if you are no longer making contributions.
According to IRC 6707A Expert Lance Wallach, "I have received hundreds of phone calls from business
owners who filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine
for either improperly filing, or for making mistakes on the form."
"The IRS directions about preparing the form are vague, especially if the form is filed late. They presume a
timely filing. In addition, many states also require forms to be filed. For example, if you work in New York State
and manage to properly fill out the Federal form, but do not file the State form, you may still get fined," says
Wallach, adding that he only knows of two people that know how to properly prepare and file the forms,
especially forms being filed late. As an expert witness in such cases, Lance Wallach’s side has never lost.
The result of the all of the above was many lawsuits against insurance companies, including Hartford, Pacific
Life, Indianapolis Life, AIG, and Penn Mutual, to name just a few. Agents, accountants, and attorneys were
also successfully sued.
Read the whole thing here
In the case of plans that fall under Internal Revenue Code Section 79, that history is complex.
Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for
years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and
others earned very large life insurance commissions in the process. Eventually, the IRS cracked down on the
unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition
to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate
the penalties and reduce the fines. Most accountants, tax attorneys and others have been unsuccessful in
accomplishing this.
After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen
problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC
6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine. In
essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or
evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and
done every year that you are in the plan in any way at all, even if you are no longer making contributions.
According to IRC 6707A Expert Lance Wallach, "I have received hundreds of phone calls from business
owners who filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine
for either improperly filing, or for making mistakes on the form."
"The IRS directions about preparing the form are vague, especially if the form is filed late. They presume a
timely filing. In addition, many states also require forms to be filed. For example, if you work in New York State
and manage to properly fill out the Federal form, but do not file the State form, you may still get fined," says
Wallach, adding that he only knows of two people that know how to properly prepare and file the forms,
especially forms being filed late. As an expert witness in such cases, Lance Wallach’s side has never lost.
The result of the all of the above was many lawsuits against insurance companies, including Hartford, Pacific
Life, Indianapolis Life, AIG, and Penn Mutual, to name just a few. Agents, accountants, and attorneys were
also successfully sued.
Read the whole thing here
Fatca, Fbar, Offshore Amnesty Large Fines Coming - HG.org
Overseas banks are warning current and former U.S. clients that their names and information soon will be disclosed and that such disclosure will disallow the taxpayer’s entry into the IRSs amnesty program for undeclared offshore accounts.
Taxpayers allowed to enter the IRS amnesty program for confessors own taxes, interest and penalties usually amounting to up to half of the account balance, but they are protected from criminal prosecution.
More than 39,000 taxpayers have entered the amnesty program for undeclared offshore accounts.
Many U.S. taxpayers and advisers have been criminally charged in connection with offshore accounts.
More than 39,000 taxpayers have entered the amnesty program for undeclared offshore accounts.
Many U.S. taxpayers and advisers have been criminally charged in connection with offshore accounts.
Using VEBAs For Employer-Owners | LifeHealthPro
Imagine a program that allows large, flexible, tax-deductible contributions to accumulate and compound on a tax-deferred basis. Distributions are received at any age without penalties, regardless of the amount. Assets are protected from creditors' claims. There are income and estate tax-free survivor benefits. The program is fully insured and, by a favorable Letter of Determination, the Internal Revenue Service has granted a tax exemption to the Section 501(c)(9) trust.
The program also can acquire tax-deductible life insurance, provide funds to pay estate taxes and provide tax-deductible educational benefits for children.
These are some of the benefits of a Voluntary Employees' Beneficiary Association (VEBA). VEBAs are tax-exempt trusts (or nonprofit corporations) that are described in Section 501(c)(9) of the Internal Revenue Code of 1986. They require a letter of determination from the IRS granting tax exempt trust status. If the statutory requirements are met and the IRS issues a favorable Letter Of Determination, then, in general, the qualified cost of contributions by an employer to the VEBA that are ordinary and necessary expenses, are deductible for federal income tax purposes.
FBAR Offshore Bank Accounts and Foreign Income Attacked by IRS
You may want to think about participation in the IRS' offshore tax amnestyprogram (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.
More Problems for 419 Plans
For years, life insurance companies and agents have tried to find ways of making life insurance premiums paid by business owners tax deductible. This would allow them to sell policies at a "discount."
The problem became acute a few years ago with outlandish claims about how §§419A(f)(5) and (6) of the Internal Revenue Code (IRC) exempted employers from any tax deduction limitations. Other inaccurate assertions were made as well, until the Internal Revenue Service (IRS) finally 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.This appeared to put an end to the scourge of scurrilous promoters, as many such plans disappeared from the landscape.
And what happened to the providers that were peddling §§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.
READ THE REST HERE
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