FBAR-OVDI & 419 Plans Litigation

Will Your Municipal Bond or Your Life Insurance Company Still Have Value Next Year?

2024-04-26T13:01:00.000-04:00

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Investor protection with municipal bonds is so spotty that there is potential for much mischief.

Disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Municipal issuers often don’t file the most basic reports outlining their operating results or material changes in their financial conditions.

Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 60,000 issuers is common.

With the S.E.C. largely on the sidelines, disclosure enforcement in the municipal market is left to participants. Do you think they really want to police themselves very closely? That leaves individuals who trade the securities, the investors, and the dealers, to monitor the disclosure information. There is almost no penalty for not complying with those requirements. This is another disaster waiting to happen. If you own municipal bonds, you had better be careful. You may want to investigate www.financeexperts.org and select someone that knows what they are doing to assist you.

Do you have a life insurance or annuity policy? If so, you may be in trouble. The plummeting financial markets are dragging down the life insurance industry, which is an important component of the U.S. economy. Continuously escalating losses weaken the companies’ capital and eat away at investor confidence.

More than a dozen life insurers have been awaiting action on applications for aid from the government’s $700 billion Troubled Asset Relief Program, and the industry is expecting an answer to its request for a bank-style bailout in the upcoming weeks. So far, the government hasn’t stated whether or not insurers qualify for the program.
Life insurers have undoubtedly been taking a beating in recent weeks. The Dow Jones Wilshire U.S. Life Insurance Index has fallen 82% since its May 2007 all time high. The Dow Jones Industrial Average has lost 21% this year to date.

Several of the hardest-hit companies are century-old names that insure the lives of millions of Americans. Shares of Hartford Financial Services Group Inc. are down 93% as of the close on Wednesday, March 11, 2009 from their 2008 high. MetLife Inc. and Prudential Financial Inc. are both suffering as the value of their vast investment portfolios declines.

As the economy weakens, analysts say many insurers face losses can eat away at the capital cushions regulators require them to maintain. In addition, experts say the industry is going through its most chaotic period in recent history and it’s a pretty scary situation right now.
The consequences of a weakened life-insurance industry for the overall economy are significant because life insurers are among the biggest holders of the nation’s corporate debt. For example, if life insurers stop buying bonds, the capital markets may not fully recover. Their buying activity has already declined.

Wall Street analysts say another problem for some life insurers is obligations for variable annuities, a retirement-income product that often guarantees minimum withdrawals or investment returns. As stock markets plunge to new lows, life insurers need to set aside additional funds to show regulators they can meet their obligations, further crimping sparse capital.

Life insurers’ woes have come largely from investment grade corporate bonds, commercial real estate and mortgages, regulatory filings show. Many insurers ended 2008 with high levels of losses that, due to accounting rules, they haven’t had to record on their bottom lines.
Hartford Financial had $14.6 billion in unrealized losses at year’s end. In addition, Hartford Insurance, through its agents, sold life insurance policies that were part of a welfare benefit plan popularly known as Niche Marketing, which has long been under IRS attack and is almost certainly regarded by the Service as an abusive tax shelter and/or listed transaction. Prudential, the second-largest insurer by assets, had nearly $11.3 billion in unrealized losses, up $5.4 billion in the fourth quarter from the previous quarter.

Lance Wallach, the National Society of Accountants Speaker of the Year, speaks and writes extensively about retirement plans, Circular 230 problems and tax reduction strategies. He speaks at more than 40 conventions annually, writes for over 50 publications, is quoted regularly in the press, and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. He does extensive expert witness work and has never lost a case. Contact him at 516.938.5007 or visit www.taxadvisorexperts.org.

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.

6707A Penalties & 419 Plans Litigation: Don't Become A Material Advisor

2024-04-26T13:00:00.001-04:00

6707A Penalties & 419 Plans Litigation: Don't Become A Material Advisor: Accounting Today JULY 1, 2011 BY LANCE WALLACH Accountants, insurance professionals and others need to be careful that they ...

Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly

2024-04-26T13:00:00.000-04:00

By Lance Wallach May 14th

Every accountant knows that increased cash flow and cost savings are critical for businesses. What is uncertain is the best path to recommend to garner these benefits.

Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.

Recently, there has been an explosion in the marketing of a financial product called Captive Insurance Plans. These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS code section 831(b). When properly designed, a business can make tax-deductible premium payments to a related-party insurance company. Depending on circumstances, underwriting profits, if any, can be paid out to the owners as dividends, and profits from liquidation of the company may be taxed as capital gains.

While captives can be a great cost saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, tax deferral or other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives under section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 plans and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

Lance Wallach speaks and writes extensively about VEBAs, retirement plans, and tax reduction strategies. He speaks at more than 70 conventions annually, writes for 50 publications, and was the National Society of Accountants Speaker of the Year. Contact him at 516.938.5007 or visit www.vebaplan.com.

419 Plan, Lance Wallach Expert

2024-04-26T12:59:00.000-04:00

419 Plan, Lance Wallach Expert: Current issues: 419 Tax Expert Witness Testimony, Abusive Tax Transactions, Captive Life Insurance Problems, IRS Help by Lance Wallach, help with 419 plans

The Bank Secrecy Act Requires a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)

2024-04-26T12:58:00.001-04:00

October 24, 2012 By Lance Wallach, CLU, CHFC

This form is used as part of the IRS's enforcement initiative against abusive offshore transactions and attempts by

· Offshore bank accounts;
· Offshore mutual funds;
· Offshore hedge funds;
· Offshore variable universal life insurance policies;
· Offshore variable annuities a/k/a Swiss Annuities;
· Debit card and prepaid credit card offshore accounts.

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.

ABOUT THE AUTHOR: Lance Wallach
Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He is an American Institute of CPA’s course developer and instructor and has authored numerous best selling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications.

Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC

FBAR fines, IRS coming after YOU

2024-04-26T12:58:00.000-04:00

Lance Wallach

If you had money overseas you need to act now. The IRS is coming to get you. Many overseas banks are reporting to the IRS on people that had money in accounts. OVDI and opting out are ways to deal with some problems.

Many tax clients with unreported offshore accounts ask if they will receive the maximum penalties if they decide not to enter into the IRS’s tax amnesty program. That’s a great question considering the IRS uses the threat of severe penalties to gain compliance with the offshore reporting rules.
The current amnesty program, called the Offshore Voluntary Disclosure Program (sometimes called “OVDI” or “OVDP”), allows those with unreported foreign bank and brokerage accounts to pay a 27.5% penalty based on the highest balance of the unreported accounts during the last 8 years. That means if you have an account worth $800,000 today and $1 million in 2009, the IRS would extract a $275,000 penalty.
There are reduced penalties for small accounts and in certain other limited circumstances.
Why would anyone agree to such a huge civil penalty? The answer is simple. Failure to disclose an offshore account can be a felony if intentional and carries civil penalties of up to 50% of the highest balance for each year the account was unreported or $100,000 per year, whichever is higher. That means if you have owned a $500,000 account for the last 4 years the penalty could be $1 million - an amount twice the value of the account! If you don’t believe us, just look at FAQ 12 on the IRS own OVDI website.
Most people who approach the voluntary disclosure program feel like they are between a rock and a hard place. Lose all your money and potentially go to prison versus paying a huge 27.5% penalty. Remember, the penalty is based on the value of the account. Most U.S. taxpayers with offshore accounts have already paid tax on the money they earned. Unless the money is from drug dealing or other illegal activities, the money has already been taxed once.
There is hope, however. The penalties most often quoted are for willful violations. Yes, there are some business people that intentionally try to hide money from the IRS or a spouse. Most violators, however, simply didn’t know about the law. The typical amnesty applicant is a dual national, an American living overseas, a foreign born American or a person sending money “home” to family in India, Mexico or China.
The IRS’ website does not draw a distinction between these groups. That causes many people who have truly made an honest mistake to needlessly panic.
Recently there has been a growing thought that the courts could strike down the FBAR* penalties law as a violation of the Eighth Amendment to the U.S. Constitution. The Eight Amendment, adopted in 1791, says that “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” While most people think of criminal and death penalty cases, there is a growing body of law surrounding the “excessive fines” language. [*An FBAR is a Report of Foreign Bank and Financial Account, the form that U.S. taxpayers must use to report foreign financial accounts yearly.]
In 1998, the U.S. Supreme Court ruled it was unconstitutional to fine a person $357,144 for failing to report cash in excess of $10,000 being removed from the country. Removing cash is not illegal just like opening a foreign account isn’t illegal. The law requires you to report both transactions, however.
In striking down the fine, the court found it was “grossly disproportionate” to the violation.
There is little guidance thus far from the courts, however the IRS has recognized the dangers in enforcing the 50% - per - year penalties on innocent violations. The Internal Revenue Manual used by IRS employee’s notes that the penalties established by Congress is the maximum amounts that can be imposed. Revenue agents are instructed to consider warning letters or lower penalties except in the most egregious cases. You need to be very careful and get good help. You get what you pay for. I am getting lots of calls from people in trouble because their accountants do not know what they are doing on these issues
If you have an unreported foreign account, contact a CPA experienced in foreign reporting requirements. The best would be someone who was in the international division of the IRS. He can probably tell you right away your situation and make suggestions. The decision to file under the OVDI amnesty program or seek a traditional disclosure is one that requires careful investigation. Once you make a traditional disclosure it is impossible to seek amnesty, however an amnesty applicant can always “opt out.”

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@gmail.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.

Jail time for failure to file TD F 90-22.1 Report of Foreign Bank and Financial Accounts

2024-04-26T12:57:00.001-04:00

Lance Wallach

A former UBS, AG ("UBS") client from Miami Beach, Florida was sentenced to four months in federal prison for willfully failing to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"), for the UBS account the man held with as much as $4,000,0000 in it. This information was released by the U.S. Attorney for the Southern District of Florida on July 25 2012.

The former UBS client paid a civil penalty of $2,000,000 related to the $4,000,000 high account balance stemming from tax year 2006. Additionally, the former UBS client was sentenced to four months in federal prison, three years of supervised release, 250 hours of community service and a $20,000 criminal fine.

The UBS account related to two offshore corporations owned by the man, one in the Virgin Islands and one in the Republic of Panama. These corporations opened accounts at UBS. The man was not named as the direct owner but instead he was deemed only the "beneficial owner." The accounts with UBS were opened from tax years 2005 through 2007.

It is stated that the man was aware of the obligation on the FBAR to report as he had previously filed FBARs for other offshore corporations. An FBAR is required to be filed by both U.S. citizens and residents who have a financial interest in or signatory authority over a non-U.S. financial account with a value of more than $10,000 at any point during the tax year. The $10,000 amount is an aggregation of all non-U.S. financial accounts and not just an analysis on an account-by-account basis.

The information on the former UBS client was turned over after UBS agreed in February 2009 to pay $780,000,000 under a deferred prosecution agreement to settle the claim that UBS conspired to defraud the U.S. by impeding the Internal Revenue Service ("IRS"). UBS also agreed to turn over information to the U.S. Department of Justice on 300 account holders. Google Lance Wallach for more articles on point.

A US citizen or resident that held an account with UBS or any other institution that has not filed the necessary FBARs for the last eight tax years, should immediately reach out to get help to discuss any potential issues they may have and their alternatives. Filing for amnesty and then opting out are two options that our former IRS agents have successfully done for our clients. If not done properly it can be a disaster. We suggest you use a CPA with years of prior experience with the IRS international division.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on FBAR, OVDI, IRS tax amnesty and opting-out abusive tax shelters, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR, OVDI, IRS tax amnesty and opting-out 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 the 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 lanwalla@aol.com visit www.taxadvisorexperts.com or www.Lawyer4Audits.com.

Offshore Banking

2024-04-26T12:57:00.000-04:00

Foreign Bank Accounts

Offshore Banking is currently under great scrutiny by the US Justice department and the IRS. Offshore bank accounts and offshore income require special reporting to the US government. Owning an offshore account is not illegal, but US income taxpayers are required to declare and report any offshore bank accounts and income each year with their tax returns. The FBAR or Foreign Bank Account Report is used to report a financial interest in or authority over offshore accounts in a foreign country. The willful failure to disclose offshore accounts, or to report all of the information required on an FBAR, can result in severe civil and criminal penalties.

To Read More:http://taxadvisorexpert.com/Resources.html

IRS: Disclose Offshore Accounts or Go to Jail

2024-04-26T12:56:00.001-04:00

IRS: Disclose Offshore Accounts or Go to Jail

Brian

That's pretty much the headline from a CNBC article on Friday. And it's true.

In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.

U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.

So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.

Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.

Those that don't comply face prison and loss of 50% of their highest account value.

So what is the risk of getting caught? We think it is quite high.

Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.

The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.

Still not convinced? The IRS paid its first award under the new whistleblower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.

The world suddenly got much smaller.

This is interesting article but I do not believe everything in it is correct. I have received numerous phone calls from participants in these plans and the IRS is auditing. For the most accurate information contact: Lance Wallach at lancewallach.com or call 516-935-7346

Offshore International Today

2024-04-26T12:56:00.000-04:00

IRS Offshore Voluntary Disclosure Program Reopens

By Lance Wallach, CLU, CHFC

Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

Today, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes. Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs.

The Offshore Voluntary Disclosure Program (OVDP) was reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will remain open indefinitely until otherwise announced.

Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS. According to Lance, it requires years of experience to obtain a good result from the program.

He suggests using a CPA-certified, ex-IRS agent with lots of international tax experience. While this is not a requirement to file under the program, Lance has heard many horror stories from people who have tried to file by themselves or who have used inexperienced accountants.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The new program is similar to the 2011 program in many ways, but it has a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we've said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort accompanies another announcement that Shulman made today, that the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program. That figure reflects closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who come in after the closing of the 2011 program will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

The new program’s penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or the value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.

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, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR, 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 the 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.taxadvisorexpert.com.

Backlash on too-good-to-be-true insurance plan

2024-04-26T12:55:00.002-04:00

No Shelter Here September 2011

Backlash on too-good-to-be-true insurance plan

by: Lance Wallach

During the past few years, the Internal Revenue Service (IRS) has fined many business owners hundreds of thousands of dollars for participating in several particular types of insurance plans.

The 412(i), 419, captive insurance, and section 79 plans were marketed as a way for small-business owners to set up retirement, welfare benefit plans, or other tax-deductible programs while leveraging huge tax savings, but the IRS put most of them on a list of abusive tax shelters, listed transactions, or similar transactions, etc., and has more recently focused audits on them. Many accountants are unaware of the issues surrounding these plans, and many big-name insurance companies are still encouraging participation in them.

Seems Attractive

The plans are costly up-front, but your money builds over time, and there’s a large payout if the money is removed before death. While many business owners have retirement plans, they also must care for their employees. With one of these plans, business owners are not required to give their workers anything.

Gotcha

Although small business has taken a recessionary hit and owners may not be spending big sums on insurance now, an IRS task force is auditing people who bought these as early as 2004. There is no statute of limitations.
The IRS also requires participants to file Form 8886 informing the IRS of participation in this “abusive transaction.” Failure to file or to file incorrectly will cost the business owner interest and penalties. Plus, you’ll pay back whatever you claimed for a deduction, and there are additional fines — possibly 70% of the tax benefit you claim in a year. And, if your accountant does not confidentially inform on you, he or she will get fined $100,000 by the IRS. Further, the IRS can freeze assets if you don’t pay and can fine you on a corporate and a personal level despite the type of business entity you have.

Legal Wrangling

Currently, small businesses facing audits and potentially huge tax penalties over these plans are filing lawsuits against those who marketed, designed, and sold the plans. Find out promptly if you have one of these plans and seek advice from a knowledgeable accountant to help you properly file Form 8886.
—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. www.taxaudit419.com, www.vebaplan.org, and www.section79plan.org
This article is for informational purposes only and should not be construed as specific legal or financial advice.

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

2024-04-26T12:55:00.001-04:00

Accounting Today

Lance Wallach

IR-2012-15, Feb. 8, 2012
WASHINGTON — The Treasury Department and the Internal Revenue Service today issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).
Enacted by Congress in 2010, the law targets non-compliance by U.S. taxpayers using foreign accounts.
The regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.
“FATCA strengthens U.S. efforts to combat offshore noncompliance. In doing so, we understand it creates a significant undertaking for financial institutions." said IRS Commissioner Doug Shulman. "Today's proposed regulations reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law."
The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.
FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

Identify U.S. accounts,
Report certain information to the IRS regarding U.S. accounts,
Verify its compliance with its obligations pursuant to the agreement, and
Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system which will become available by Jan. 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be

subject to withholding on certain types of payments relating to U.S. investments.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page on this website.

Jail time for failure to file TD F 90-22.1 Report of Foreign Bank and Financial Accounts

2024-04-26T12:55:00.000-04:00

Jail time for failure to file TD F 90-22.1 Report of Foreign Bank and Financial Accounts

Issues With Potential Criminal Charges: Voluntary Disclosure-FBAR-OVDI

2024-04-26T12:54:00.001-04:00

Lance Wallach

From the IRS website:

New Filing Compliance Procedures for Non-Resident U.S. Taxpayers

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1. Some of these taxpayers have recently become aware of their filing obligations and now seek to come into compliance with the law. The Service is announcing a new procedure for current non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns to file their delinquent returns. This procedure will go into effect on Sept. 1, 2012.

Description of proposed new procedure:

While more details will be forthcoming, taxpayers utilizing the new procedure will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent FBARs for the past six years. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Unfiled Returns

The remedy is to get the returns filed

There are two advantages to filing as soon as possible:
Generally, if a taxpayer is due a refund for withholding or estimated taxes paid, it must be claimed within 3 years of the return due date or risk losing the right to it. The same rule applies to a right to claim a tax credit such as the Earned Income Credit (EIC).
Self-employed persons who do not file a return will not receive credits toward Social Security retirement or disability benefits. Failure to file results in not reporting any self-employment income to the Social Security Administration.
Taxpayers who haven’t filed returns always want to know what problems could result from failure to file returns. The following is from the IRS website:
A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.
The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.

Attention taxpayers who have undisclosed foreign accounts

You need to consider the 2012 Offshore Voluntary Disclosure Program (OVDP)
From question 4 of Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:
Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available under the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D).
From question 3 of Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers:
When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

IR-2012-5, Jan. 9, 2012

WASHINGTON — The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He is an American Institute of CPA’s course developer and instructor and has authored numerous best selling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit www.vebaplan.com, www.taxlibrary.us, lawyer4audits.com or call 516-938-5007

Offshore Money, FBAR International Tax and the IRS

2024-04-26T12:54:00.000-04:00

Hg Experts

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By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

FBAR, International Tax, IRS audits be careful. IRS Offshore Voluntary Disclosure Program Reopens Do YOU have money overseas? By Lance Wallach, CLU, CHFC - Recently the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.

Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs.

The Offshore Voluntary Disclosure Program (OVDP) was reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will remain open indefinitely until otherwise announced.

Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS. According to Lance, it requires years of experience to obtain a good result from the program.

He suggests using a CPA-certified, ex-IRS agent with lots of international tax experience. While this is not a requirement to file under the program, Lance has heard many horror stories from people who have tried to file by themselves or who have used inexperienced accountants.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The new program is similar to the 2011 program in many ways, but it has a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we've said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort accompanies another announcement that Shulman made today, that the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program. That figure reflects closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from upfront payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who come in after the closing of the 2011 program will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

The new program’s penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or the value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.

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, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i),, 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 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 the 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.taxadvisorexpert.com.

While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

OVDI, FBAR, INTERNATIONAL TAX UPDATE: Deadlines, E-Filing Option and New IRS Form 8938

2024-04-26T12:53:00.001-04:00

Lance Wallach
June 15, 2012

American taxpayers. person with a financial interest in, or signature or other authority over, any financial account outside the U.S. must file an annual report on Treasury Form TD F 90-22.1 Report of Financial Accounts, commonly known as an “FBAR” if the aggregate value of all such accounts exceeds 10,000 at any time during the calendar year. Unlike tax returns, which may be mailed on the filing deadline and be considered timely, the FBAR for 2011 must have been received by Treasury by June 30, 2012. As summarized below, over the past year, the Financial Crimes Enforcement Network “FinCEN” has issued guidance regarding extended filing FBAR deadlines and new filing options. The Internal Revenue Service has also issued a new form Form 8938 that requires additional disclosure regarding foreign financial assets. There is now an online filing option that require only one signature. The online form and instructions provide for a more immediate means by which to ensure that the FBAR was received by the June 30 deadline. Since only one signature can be submitted on the electronic form, the e-filing process is not an option for joint filers. For filers not using the e-filing option, this form must be filed with the U.S. Department of Treasury, P.O. Box 32621, Detroit, MI, 48232-0621. The address for commercial delivery is: IRS Enterprise Computing Center, Attn: CTR Operations Mailroom, 4th Floor, 985 Michigan Avenue, Detroit, MI, 48226, contact phone number: 313-234-1062. Note that the contact phone number for courier delivery may not be used to confirm receipt of the FBAR. As clarified in the final regulations which were issued last year, the following definitions determine those individuals and entities subject to the FBAR filing obligation: 1. “United States person” is defined to mean a United States citizen or resident; an entity, including but not limited to a corporation, partnership, or limited liability company, created or organized in the United States or under the laws of the United States; and a trust or estate formed under the laws of the United States. Non-U.S. persons doing business in the United States are not required to file FBARs. 2. A “financial account” includes a savings deposit, demand deposit, checking, securities, security derivatives, debt card, prepaid credit card and any other financial instrument account, including certain insurance products and foreign pension funds. This includes an account with “a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions." An equity interest in a hedge fund or private equity fund is not currently considered to be a “financial account,” though the IRS is considering this question further. A United States person having a financial interest in 25 or more foreign financial accounts, or signature or other authority over 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the FBAR form. If requested in the future, detailed information concerning each account must be provided. 3. A person has a “financial interest” in an account if he has legal title or is the owner of record, regardless of whether the account is maintained for his benefit. For example, IRS guidance provides that an individual who may access a foreign financial account held on another’s behalf due to a power of attorney and who is the owner of record on the account has a “financial interest” in such account and must file the FBAR. In some cases, certain direct and indirect stockholders of corporations, partners of partnerships and persons holding voting or equity interests in other entities may be required to file FBARs with respect to foreign financial accounts of these entities. In particular, these rules apply to a United States person who owns, directly or indirectly, more than 50 percent of (a) the voting power or the total value of the shares of a corporation, (b) the interest in profits or capital of a partnership, or (c) the voting power, total value of the equity interest or assets, or interest in profits. For example, if a U.S. corporation owns 100% of a foreign company that has foreign financial accounts, the domestic corporation must file an FBAR, as must any shareholder who owns more than 50% of the voting power or total value of the shares of the U.S. Corporation. A present beneficial interest in more than 50% of the current income or more than 50% of the assets of a trust that holds a foreign financial account triggers an FBAR filing requirement by the trust beneficiary. However, a trust beneficiary does not need to file the FBAR if the trust, trustee or an agent is a United States person and files an FBAR disclosing the trust’s foreign accounts. A person with a remainder interest in a trust is not within the scope of the FBAR. It is also possible that a discretionary beneficiary of a trust may not have an FBAR filing requirement with respect to the trust. 4. “Signature authority” is defined as the power of an individual to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) with the financial institution that maintains the financial account. An individual who merely has the power to allocate assets within an account does not have “signature authority” for the purposes of the FBAR filing requirement. Note that a United States person that causes an entity to be created for the purpose of evading the FBAR requirement shall have a reportable financial interest. In addition to any applicable FBAR filing obligations, certain individual U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 must report information about those assets on new Form 8938. Unlike the FBAR, which is filed with the Treasury separate from any other tax filings by a June 30 deadline, Form 8938 must be attached to the individual taxpayer’s annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad (see below). Form 8938 reporting applies for specified foreign financial assets in which the taxpayer has an interest in taxable years starting after March 18, 2010. For most individual taxpayers, this means they should have started filing Form 8938 with their 2011 income tax return. Individual taxpayers that hold interests in foreign financial accounts may thus need to report such accounts on at least three separate forms: their individual U.S. tax return, the FBAR and Form 8938. Individual taxpayers are encouraged to consult with their tax advisers to determine which of these or other forms may be required. The penalty for failure to file the FBAR, if non-willful, is up to $10,000. Willful failures to comply with the filing requirement incur penalties of up to $100,000 or 50% of the foreign financial account balances; criminal penalties may also apply. The IRS says willfulness can be a conscious effort to avoid learning about FBAR reporting. In its internal audit guidance, the IRS says that with hardly any diligence, a taxpayer could have learned of the FBAR filing requirements quite easily. Thus taxpayers with foreign accounts are advised to read the information the government specifies in its tax forms and instructions. A failure to follow-up on this knowledge may provide evidence of “willful blindness.” The penalty for failure to file Form 8938 is up to $10,000 for a failure to disclose the foreign financial assets and an additional $10,000 for each 30-days of non-filing after the IRS issues a notice of failure to disclose, for a maximum potential penalty of $60,000; criminal penalties may also apply. I suggest that when dealing with these very important issues, it is important to utilize a competent CPA with many years of experience in dealing with international tax. In my opinion a long-term former employee of the IRS who was in the international division would be the first step. If that CPA also was an IRS appeals Officer at sometime in his career that would be a plus. The reason for this is we have seen excellent results when a US taxpayer files for amnesty and then opts out. If this tricky procedure is done properly the US taxpayer ends up dealing with the appeals division of the IRS. When you deal with the Appeals Division of the IRS you almost always get a better deal and pay less taxes that could result in a savings of thousands of dollars. I have received a very large number of phone calls form US taxpayers who are trying to deal with some or all of these issues. Almost all of the advise they have received from CPA’s or attorney’s has been in my opinion been flawed. By filing for amnesty and then properly opting out most taxpayers will save thousands. 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, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 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 the 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.taxadvisorexpert.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.

FBAR International Tax OVDI

2024-04-26T12:53:00.000-04:00

Lance Wallach

FBAR and international tax are hot issues that are costing people a lot of money. If you don’t do it right you will have IRS problems. Be careful who helps you. It may cost you a lot of money, or in the extreme time in Jail.
U.S. citizens with financial interest or signature authority over any foreign financial account (including bank, brokerage, securities, or other types of financial accounts) located outside of the United States, are required to report that information each year. Since most, if not all, U.S. citizens residing in a foreign country have a foreign bank account for their ordinary banking activities, they are subject to this same reporting requirement. If a person is required to file FBARs retroactively, they only have to file them for the last six years. The statute of limitations for assessing FBAR penalties is six years from the due date of the FBAR.

A failure to file the FBAR may subject the taxpayer to a willful or a non-willful civil penalty, in absence of reasonable cause. The civil penalty for willfully failing to file an FBAR can be up to $100,000 or 50% of the total account balance at the time of the violation. Non-willful violations are subject to a penalty of up to $10,000 per violation. However, if the failure to file was due to reasonable cause, as determined by the IRS, then there is no penalty. Please be very careful how you do this.

The IRS will consider factors such as taxpayer's reliance on a professional tax advisor, no indication of intent to conceal income or assets and other additional facts that weigh in favor of a determination that the violation was due to reasonable cause. The IRS will consider the facts and circumstances of the taxpayer's situation before imposing a penalty and may instead issue a warning letter. I have received hundreds of phone calls from people with big IRS problems. Many were caused by them getting bad advise.

The IRS reopened the Offshore Voluntary Disclosure Program (2012 OVDP) with News Release IR-2012-5 on January 9, 2012. The 2012 OVDP will remain open for an indefinite period of time, with no set deadline for taxpayers to apply. The overall penalty structure for the 2012 OVDP requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign accounts/entities or value of foreign assets during the eight tax years prior to disclosure. Some participants, in limited circumstances, will be eligible for a lower penalty of 12.5% or 5%.

Taxpayers must consider their specific situation before making a decision about how best to become compliant with the U.S tax laws. With the announcement of the 2012 OVDP, they and their advisors need to determine whether they should follow the guidance provided in IRS Fact Sheet FS-2011-13, file returns for the past six years and hopefully be granted reasonable cause relief or, alternatively, participate in the 2012 OVDP, file and pay taxes for the past eight years to obtain amnesty from criminal prosecution. They should also consider filing and then opting out. If done correctly this may be the best solution. Consider using an ex ITS agent who was with the international division of the IRS. If he is a CPA that is even better. I have found you get want you pay for. Do not try to do this on your own. Do not use a CPA unless he has years of experience on these issues. You do not want him to learn on the job.

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@gmail.com, or at www.taxaudit419.com or www.lancewallach.com.

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IRS Tax Audits, 419 and 412i plans, Tax resolution services: Check out http://taxadvisorexperts.com! Expert CPA help with 419a, 419e, 419, 412i, welfare benefit plans, 6707a penalties, form 8886, IRS audits, Section 79, Captive insurance, FBAR, tax masters, jk harris, wpi, us tax shield.

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The dangers of being "listed" : A warning for 419, 412i, Sec.79 and captive insurance

2017-05-24T15:11:00.000-04:00

Accounting Today Lance Wallach

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 ($200,000 for a business and $100,000 for an individual) 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 also it has to be prepared correctly. I only know of two people in the United States who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over fifty phones calls to various IRS personnel.

The filing instructions for Form 8886 presume a timely filing. 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 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 Limitation

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.taxaudit419.com or www.taxlibrary.

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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2017-05-24T15:10:00.007-04:00

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During the past few years, the Internal Revenue Service (IRS) has fined many business owners hundreds of thousands of dollars for participating in several particular types of insurance plans.

Seems Attractive

Gotcha

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From the IRS website:

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Description of proposed new procedure:

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The remedy is to get the returns filed

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