FBAR, OVDI, OPT-OUT, AMNESTY, 412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS,401K,IRS RED FLAG, 401KPENALTY
Call now to find out how we can help you 5 1 6 - 9 3 5 - 7 3 4 6 HOME ABOUT US ARTICLES CONTACT US 412(I) PLANS IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A By Lance Wallach Expert Witness 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. "Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years." Many business owners adopted 412i, 419, captive insurance and Section 79 plans based upon representations provided by insurance professionals that the plans were legitimate plans and were not informed that they were engaging in a listed transaction. Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section 6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A penalties. The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS’s inquiry, especially when the taxpayer had previously reached a mo
The Bank Secrecy Act (BSA), P.L. 91-508, requires certain U.S. persons who have a financial interest in or signatur
The IRS announced on June 18, 2014, that streamlined filing compliance procedures would be changed to allow a wider population of U.S. taxpayers with unreported foreign accounts to qualify. Taxpayers living outside the United States continue to qualify, and, for the first time, some U.S. taxpayers residing in the United States qualify as well (see irs.gov).
Originally, the streamlined filing compliance procedures introduced on Sept. 1, 2012, were available only to nonresident U.S. taxpayers who failed to file required income tax returns. These taxpayers were subject to different degrees of review based on current tax liability and their response to a risk questionnaire.
The changes introduced in the streamlined procedures include:
Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year; Eliminating the required risk questionnaire; and Requiring the taxpayer to certify that previous failures to comply were due to nonwillful conduct. All penalties will be waived for eligible U.S. taxpayers residing outside the United States. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the tax compliance issue.
FBAR relief separate from the streamlined procedures
Taxpayers who were required to file FBARs but failed to do so, and who are not under IRS civil examination or criminal investigation, should file the delinquent FBARs electronically through the BSA E-Filing System and include a statement explaining why the filings are late.
A penalty will not be imposed for failure to file delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid, and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
Eligibility criteria for the streamlined procedures
The new modified compliance procedures are designed only for individual taxpayers, which includes the taxpayer's estate. Non-U.S. residents are subject to procedures referred to as "Streamlined Foreign Offshore Procedures," while U.S. residents are subject to "Streamlined Domestic Offshore Procedures." The criteria are:
Taxpayers must certify that their conduct was not willful. Both the foreign and domestic procedures require taxpayers to certify that the failure to report all income, pay all taxes, and submit all required returns, including the FBAR, was due to nonwillful conduct. The IRS has not initiated a civil examination of the taxpayers' returns for any tax year, and the taxpayers are not under IRS criminal investigation. Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns (so-called quiet disclosures) must pay any penalties assessed on those filings. Taxpayers who want to participate in the streamlined procedures need a valid taxpayer identification number (TIN). For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security number. Others need an individual taxpayer identification number, which, for taxpayers who do not have one, can be applied for when submitting the request to participate in the streamlined program.
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IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A
By Lance Wallach Expert Witness 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.
"Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years."
Many business owners adopted 412i, 419, captive insurance and Section 79 plans based upon representations provided by insurance professionals that the plans were legitimate plans and were not informed that they were engaging in a listed transaction. Upon audit, these taxpayers were shocked when the IRS asserted penalties under Section 6707A of the Code in the hundreds of thousands of dollars. Numerous complaints from these taxpayers caused Congress to impose a moratorium on assessment of Section 6707A penalties.
The moratorium on IRS fines expired on June 1, 2010. The IRS immediately started sending out notices proposing the imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS’s inquiry, especially when the taxpayer had previously reached a mo
The Bank Secrecy Act (BSA), P.L. 91-508, requires certain U.S. persons who have a financial interest in or signatur
ReplyDeleteThe IRS announced on June 18, 2014, that streamlined filing compliance procedures would be changed to allow a wider population of U.S. taxpayers with unreported foreign accounts to qualify. Taxpayers living outside the United States continue to qualify, and, for the first time, some U.S. taxpayers residing in the United States qualify as well (see irs.gov).
Originally, the streamlined filing compliance procedures introduced on Sept. 1, 2012, were available only to nonresident U.S. taxpayers who failed to file required income tax returns. These taxpayers were subject to different degrees of review based on current tax liability and their response to a risk questionnaire.
The changes introduced in the streamlined procedures include:
Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year;
Eliminating the required risk questionnaire; and
Requiring the taxpayer to certify that previous failures to comply were due to nonwillful conduct.
All penalties will be waived for eligible U.S. taxpayers residing outside the United States. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the tax compliance issue.
FBAR relief separate from the streamlined procedures
Taxpayers who were required to file FBARs but failed to do so, and who are not under IRS civil examination or criminal investigation, should file the delinquent FBARs electronically through the BSA E-Filing System and include a statement explaining why the filings are late.
A penalty will not be imposed for failure to file delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid, and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
Eligibility criteria for the streamlined procedures
The new modified compliance procedures are designed only for individual taxpayers, which includes the taxpayer's estate. Non-U.S. residents are subject to procedures referred to as "Streamlined Foreign Offshore Procedures," while U.S. residents are subject to "Streamlined Domestic Offshore Procedures." The criteria are:
Taxpayers must certify that their conduct was not willful. Both the foreign and domestic procedures require taxpayers to certify that the failure to report all income, pay all taxes, and submit all required returns, including the FBAR, was due to nonwillful conduct.
The IRS has not initiated a civil examination of the taxpayers' returns for any tax year, and the taxpayers are not under IRS criminal investigation.
Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns (so-called quiet disclosures) must pay any penalties assessed on those filings.
Taxpayers who want to participate in the streamlined procedures need a valid taxpayer identification number (TIN). For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security number. Others need an individual taxpayer identification number, which, for taxpayers who do not have one, can be applied for when submitting the request to participate in the streamlined program.