ACCOUNTING TODAY JUNE 19-JULY 9 ISSUE FINANCIAL PLANNING News and strategies for the personal financial planner
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IRS Auditing 412(i) Plans
| IRS Auditing 412(i) Plans |
| defined-benefit pension plans. They are seeking substantial taxes and penalties from what they characterize as “abusive plans,” but they do not regard all 412 (i) plans as necessarily abusive. A properly structured and administered 412(i) plan can be an invaluable tax reduction tool for a business, but care must be taken. In addition, the IRS is stepping up its examinations of companies’ retirement plans this year, aiming to catch those that are cheating their workers or the government, and to ensure that the plans meet federal regulations. The offerings to be examined include traditional pensions, 401(k)s and profit-sharing plans. A few years ago, when I spoke at the national convention of the American Society of Pension Professionals and Actuaries about VEBAs, the IRS spoke about their 412(i) concerns. Since then, they have escalated their challenges to “abusive” 412(i) plans. In fact, certain plans are on the IRS list of abusive tax transactions. Taxpayers who participate in “listed transactions” are required to report them to the IRS or face substantial penalties ($100,000 in the case of individuals, and $200,000 in the case of entities). In addition, “material advisors” to these plans are required to maintain certain records and turn them over to the IRS on demand. When I addressed the 2005 annual convention of the National Society of Public Accountants, the IRS spoke about Circular 230. My impression was that if an accountant signed a tax return that disclosed involvement in a listed and/or abusive tax transaction, there could be Circular 230 implications. Most accountants are not familiar with 412(i) plans. They are a type of defined-benefit pension plan that allows a large contribution. The funding vehicles are usually fixed annuities and fixed life insurance. They are traditionally sold by life insurance professionals and financial planners. |
Given the substantial taxes and penalties that may be assessed if the IRS concludes that a 412(i) plan has not been properly structured or administered,------------------------------------- The IRS is aiming to catch companies that are cheating their workers or the government. -------------------------------------especially if it concludes that the plan is a listed transaction, it is important that the taxpayer know the rules. The accountant should also be aware of them. The fact that a plan is being sold by an insurance company does not make it safer. Recently the IRS has taken action against plans sold by insurance companies.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 plans. He speaks at more than ten conventions annually, writes for over fifty 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 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@gmail.com or visit www.taxadvisorexperts.org or www.taxlibrary.us.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. |
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