IRS auditing 412(i) plans
By: Lance Wallach | Posted: 05th February 2008
ACCOUNTING TODAY JUNE 19-JULY 9, 2006
FINANCIAL PLANNING News and strategies for the personal financial planner
IRS auditing 412(i) plans
by Lance Wallach
The Internal Revenue Service has recently been auditing 412(i) 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. However, in recent years, they have gained in popularity.
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 speaks and writes extensively about VEBAs, 412(i) plans, retirement plans, tax reduction strategies, and estate planning. For more information, visit www.vebaplan.com or call (516)938-5007.
About the Author
Occupation: Author, Speaker, Consultant on Tax Reduction and o
LANCE WALLACH, CLU, CHFC, CIMC_________________
68 Keswick Lane
Plainview, New York 11803
Phone: (516) 938-5007 / 935-7346
Fax: (516)938-6330
Email: lawallach@aol.com
www.lancewallach.com
National Society of Accountants Speaker of the Year
EDUCATION
· Baruch College (CUNY), Baruch College Graduate School
· The American College – Chartered Financial Consultant (ChFC)
· The American College – Chartered Life Underwriter (CLU)
· The Institute for Investment Management Consultants – Certified
Investment Management Consultant (CIMC)
GUEST LECTURER FOR
· Baruch College (Taxes on Tuesdays); Long Island University, C.W. Post Graduate School of Accountancy.
· Speaker at more than 70 conventions yearly, including the annual national conventions of the American Association of Attorney Certified Public Accountants, National Society of Accountants, National Network of Estate Planning Attorneys, National Association of Tax Practitioners, National Association of Enrolled Agents, National Association of Health Underwriters, American Society of Pension Actuaries, Employee Benefits Expo, Health Insurance Underwriters, NAPFA, NAIFA, FPA, NABA, ALPFA, various state CPA societies, Tax Institutes, as well as medical and insurance conventions, before CLU Societies, CPA/Law Forums throughout the United States, and Estate Planning seminars.
Lance Wallach, a member of the AICPA faculty of teaching professionals and an AICPA course developer, is a frequent and popular speaker on retirement plans, financial and estate planning, reducing health insurance costs, and tax-oriented strategies at accounting and financial planning conventions. He has authored numerous books including The Team Approach to Tax, Financial and Estate Planning by the AICPA and Wealth Preservation Planning by the National Society of Accountants. His newest books CPAs’ Guide to Life Insurance, and CPAs’ Guide to Federal and Estate Gift Taxation will be published this spring by Bisk CPEasy. Mr. Wallach writes for over fifty publications including AICPA Planner, Accounting Today, CPA Journal, Enrolled Agents Journal, Financial Planning, Registered Representative, Tax Practitioners Journal, CPA/Law Forum, Employee Benefit News, Health Underwriter, Advisor and the American Medical Association News. Mr. Wallach teaches accountants how to increase their clientele. Mr. Wallach is listed in Who’s Who in Finance and Industry and has been featured on television and radio financial talk shows.
• Associates throughout the United States
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