Abusive Insurance and Retirement Plans

Abusive Insurance and Retirement Plans

Single–employer section 419 welfare benefit plans are the latest incarnation in insurance deductions the 
IRS deems abusive

BY LANCE WALLACH
XECUTIVE SUMMARY

Some of the listed transactions CPA tax practitioners are most likely to encounter are employee benefit 
insurance plans that the IRS has deemed abusive. Many of these plans have been sold by promoters in 
conjunction with life insurance companies.

As long ago as 1984, with the addition of IRC §§ 419 and 419A, Congress and the IRS took aim at unduly 
accelerated deductions and other perceived abuses. More recently, with guidance and a ruling issued in 
fall 2007, the Service declared as abusive certain trust arrangements involving cash-value life insurance 
and providing post-retirement medical and life insurance benefits.

The new "more likely than not" penalty standard for tax preparers under IRC § 6694 raises the stakes for 
CPAs whose clients may have maintained or participated in such a plan. Failure to disclose a listed 
transaction carries particularly severe potential penalties.

Lance Wallach, CLU, ChFC, CIMC, is the author of the AICPA’s The Team Approach to Tax, Financial and 
Estate Planning. He can be reached at lawallach@aol.com or on the Web at, www.vebaplan.com or 516-
938-5007. The information in this article is not intended as accounting, legal, financial or any other type of 
advice for any specific individual or other entity. You should consult an appropriate professional for such 
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