I purchased my home in 1995. I've had it refinanced once since then however, I've never been late on a mortgage payment until 2009 when the economy took a dive. I had previously retired from a 23 year job before going into business for myself. In 2009, I not only lost contract, s vendors were either unable to pay me timely and some didn't pay me at all. I was ultimately forced to go out of business. After months of unsuccessfully seeking to find viable employment in a 50 mile radius of where I resided, I took a job offer in California, in order to try to save my home. After my second payday, I applied to Chase for the making homes affordable modification. I made my living circumstances and reason for living in Florida but taking a job in California know to them out front. It took Chase 10 long months of repeated request for same documentation as well as numerous statements of why the living circumstances and then they rejected my application based upon the fact that I was living in a location other than where my home is. I was then told if I permanently moved back to Florida as opposed to commuting and found employment, they would reopen my application. Well, it took me about 6 weeks to get a not so good job, but a job, and was then told by Chase that because of the lapse in time, I would have to start the modification process all over, which I'm doing right now. Could they not have told me the reason for denial, in the first 30 days and perhaps the process could be complete by now.

I asked Chase if I could settle with them and pay my outstanding balance after they hit me with a $220 penalty when I missed a payment and was then two days late on a subsequent payment--this after having paid my monthly bills on time for more than a year. (I owed only $650 before the penalty.) They refused. The reason I missed a payment was because I had switched to paperless billing, hoping to save some trees and a stamp. Chase was collecting for Circuit City. The paper bills always said Circuit City on the outside. The online Chase bill made no mention of Circuit City in the subject line; I simply thought the bill was for my wife's Washington Mutual card which became Chase a couple of months ago after Chase took over that bank. The Chase representative spoke like a robot about the bank not having made any mistake. (I wonder, has Chase taken any bailout money?) The bank clearly engages in deceptive practices and is unreasonable to charge me a penalty of about 30% interest. Also, they cancelled the Circuit City promotion.

419, 412i, Captive And Section 79 Plans Continue To Draw Lots Of IRS Attention.

February 7, 2011
By Lance Wallach

Recent court cases have highlighted serious problems in welfare benefit plans issued by Nova Benefit Plans. Recently unsealed IRS criminal case information now raises concerns with other plans as well. If you have any type plan issued by NOVA Benefit Plans, U.S. Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service or Benistar, you may have a criminal problem. You may be subject to an audit or in some cases, criminal prosecution.

On November 17th, Fifty-nine pages of search warrant materials were unsealed in the Nova Benefit Plans litigation currently pending in the U.S. District Court for the District of Connecticut. According to these documents, the IRS believes that Nova is involved in a significant criminal conspiracy involving the crimes of Conspiracy to Impede the IRS and Assisting in the Preparation of False Income Tax Returns.

In 2010, seventy armed IRS Criminal Division special agents raided the offices of Nova Benefit Plans. The IRS has taken other recent criminal enforcement actions in other states including Nebraska and Milwaukee, Wisconsin. The IRS has told the court that it believes Nova is promoting abusive "section 419" welfare benefit plans.

The IRS claims that a cooperating witness and several undercover agents "penetrated" Nova to ascertain its internal operations. They say Nova helped their clients violate tax laws by claiming the most minor injuries as permanent disabilities to qualify for special tax treatment. In other words, they would assist clients claim a minor scrape was a disabling and disfiguring permanent injury.19, 412i, Captive And Section 79 Plans Continue To Draw Lots Of IRS Attention.
The IRS also claims that Nova assisted clients in backdating documents filed with the IRS.

According to the IRS, Nova's plan was a scam because Nova helped taxpayers claim false disabilities. The Internal Revenue Code says disability payments are tax free if there is a permanent loss of a bodily part or function. A small scrape is a far cry from the loss of an eye."

Nova is not alone in the scam. According to the IRS affidavit, Nova and its principals have also done business as U.S. Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service and Benistar.

Anyone who has purchased a plan from Nova or the related entities should immediately get help. If the IRS is correct and these plans are not legitimate, the tax consequences to participants could be very high. In some cases, if clients entered these plans with knowledge of Nova's history or promises to evade taxes, the consequences could involve prison.

As a result of the raid and a cooperating witness, the IRS is believed to have the client lists of Nova, Grist Mill and the others.

The IRS is also auditing other 419 and 412i plans. They are also fining participants a large amount of money for not properly informing on themselves under IRS 6707. If you are in an abusive 419, 412i captive insurance or section 79 plan you must file with the IRS. If you don’t file, or incorrectly fill out the forms, the fines that I am aware of have averaged around $300, 000. If someone sold one of these plans, or signed a tax return claiming deductions for one, IRS can call them a material advisor and fine them $100, 000. They have to file also. I have been getting a large volume of phone calls from people getting these fines. You need to act before this happens to you.

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 Pubic 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 Lance Wallach at 516.938.5007 or [email protected]

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.

NEW JERSEY ASSOCIATION OF PUBLIC ACCOUNTANTS

Lines from Lance - Newsletter November 2009


Business Owners, Accountants, and Others Fined $200, 000 by IRS and Don’t Know Why

By Lance Wallach
If you are a small business owner, accountant or insurance professional you may be in big trouble and not know it. IRS has been fining people like you $200, 000. Most people that have received the fines were not aware that they had done anything wrong. What is even worse is that the fines are not appeal-able. This is not an isolated situation. This has been happening to a lot of people.

Currently, the Internal Revenue Service (“IRS”) has the discretion to assess hundreds of thousands of dollars in penalties under §6707A of the Internal Revenue Code (“Code”) in an attempt to curb tax avoidance shelters. This discretion can be applied regardless of the innocence of the taxpayer and was granted by Congress. It works so that if the IRS determines you have engaged in a listed transaction and failed to properly disclose it, you will be subject to a potentially draconian penalty regardless of any other facts and circumstances concerning the transaction. For some, this penalty has been assessed at almost a million dollars and for many it is the beginning of a long nightmare.

The following is an example: Pursuant to a settlement with the IRS, the 412(i) plan was converted into a traditional defined benefit plan. All of the contributions to the 412(i) plan would have been allowable if they had initially adopted a traditional defined benefit plan. Based on negotiations with the IRS agent, the audit of the plan resulted in no income and minimal excise taxes due. This is because as a traditional defined benefit plan, the taxpayers could have contributed and deducted the same amount as a 412(i) plan.
Towards the end of the audit the business owner received a notice from the IRS. The IRS assessed the client penalties under the §6707A of the Code in the amount of $900, 000.00. This penalty was assessed because the client allegedly participated in a listed transaction and allegedly failed to file the form 8886 in a timely manner.

The IRS may call you a material advisor and fine you $200, 000.00. The IRS may fine your clients over a million dollars for being in a retirement plan, 419 plan, etc. As you read this article, hundreds of unfortunate people are having their lives ruined by these fines. You may need to take action immediately. The Internal Revenue Service said it will extend until the end of 2009 a grace period granted to small business owners for collection of certain tax-shelter penalties.

But with that deadline approaching, Congress has not yet acted on the tax shelter penalty legislation. IRS Commissioner Doug Shulman said in a letter to the chairmen and ranking members of tax-writing committees that the IRS will continue to suspend its collection efforts with regard to the penalties until Dec. 31, 2009.

"Clearly, a number of taxpayers have been caught in a penalty regime that the legislation did not intend, " wrote Shulman. "I understand that Congress is still considering this issue, and that a bipartisan, bicameral, bill may be in the works." The issue relates to penalties for so-called listed transactions, the kinds of tax shelters the IRS has designated most egregious. A number of small business owners that bought employee retirement plans so called 419 and 412(i) plans and others, that were listed by the IRS, and who are now facing hundreds and thousands in penalties, contend that the penalty amounts are unfair.
Leaders of tax-writing committees in the House and Senate have said they intend to pass legislation revising the penalty structure.

The IRS has suspended collection efforts in cases where the tax benefit derived from the listed transaction was less than $100, 000 for individuals, or less than $200, 000 for firms.

Senator Ben Nelson (D-Nebraska) has sponsored legislation (S.765) to curtail the IRS and its nearly unlimited authority and power under Code Section 6707A. The bill seeks to scale back the scope of the Section 6707A reportable/listed transaction nondisclosure penalty to a more reasonable level. The current law provides for penalties that are Draconian by nature and offer no flexibility to the IRS to reduce or abate the imposition of the 6707A penalty. This has served as a weapon of mass destruction for the IRS and has hit many small businesses and their owners with unconscionable results.

Internal Revenue Code 6707A was enacted as part of the American Jobs Creation Act on October 22, 2004. It imposes a strict liability penalty for any person that failed to disclose either a listed transaction or reportable transaction per each occurrence. Reportable transactions usually fall within certain general types of transactions (e.g. confidential transactions, transactions with tax protection, certain loss generating transaction and transactions of interest arbitrarily so designated as by the IRS) that have the potential for tax avoidance. Listed transactions are specified transactions which have been publicly designated by the IRS, including anything that is substantially similar to such a transaction (a phrase which is given very liberal construction by the IRS). There are currently 34 listed transactions, including certain retirement plans under Code section 412(i) and certain employee welfare benefit plans funded in part with life insurance under Code sections 419A(f)(5), 419(f)(6) and 419(e). Many of these plans were implemented by small business seeking to provide retirement income or health benefits to their employees.

Strict liability requires the IRS to impose the 6707A penalty regardless of innocence of a person (i.e. whether the person knew that the transaction needed to be reported or not or whether the person made a good faith effort to report) or the level of the person’s reliance on professional advisors. A Section 6707A penalty is imposed when the transaction becomes a reportable/listed transaction. Therefore, a person has the burden to keep up to date on all transactions requiring disclosure by the IRS into perpetuity for transactions entered into the past.

Additionally, the 6707A penalty strictly penalizes nondisclosure irrespective of taxes owed. Accordingly, the penalty will be assessed even in legitimate tax planning situations when no additional tax is due but an IRS required filing was not properly and timely filed. It is worth noting that a failure to disclose in the view of the IRS encompasses both a failure to file the proper form as well as a failure to include sufficient information as to the nature and facts concerning the transaction. Hence, people may find themselves subject to the 6707A penalty if the IRS determines that a filing did not contain enough information on the transaction. A penalty is also imposed when a person does not file the required duplicate copy with a separate IRS office in addition to filing the required copy with the tax return. Lance Wallach Commentary. In our numerous talks with IRS, we were also told that improperly filling out the forms could almost be as bad as not filing the forms. We have reviewed hundreds of forms for accountants, business owners and others. We have not yet seen a form that was properly filled in. We have been retained to correct many of these forms.

For more information see www.vebaplan.com, www.lawyer4audits.com, www.irs.gov or e-mail us at [email protected]

The imposition of a 6707A penalty is not subject to judicial review regardless of whether the penalty is imposed for a listed or reportable transaction. Accordingly, the IRS’s determination is conclusive, binding and final. The next step from the IRS is sending your file to collection, where your assets may be forcibly taken, publicly recorded liens may be placed against your property, and/or garnishment of your wages or business profits may occur, amongst other measures.

The 6707A penalty amount for each listed transaction is generally $200, 000 per year per each person that is not an individual and $100, 000 per year per individual who failed to properly disclose each listed transaction. The 6707A penalty amount for each reportable transaction is generally $50, 000 per year for each person that is not an individual and $10, 000 per year per each individual who failed to properly disclose each reportable transaction. The IRS is obligated to impose the listed transaction penalty by law and cannot remove the penalty by law. The IRS is obligated to impose the reportable transaction penalty by law, as well, but may remove the penalty when the IRS determines that removal of the penalty would promote compliance and support effective tax administration.

The 6707A penalty is particularly harmful in the small business context, where many business owners operate through an S corporation or limited liability company in order to provide liability protection to the owner/operators. Numerous cases are coming to light where the IRS is imposing a $200, 000 penalty at the entity level and them imposing a $100, 000 penalty per individual shareholder or member per year.

The individuals are generally left with one of two options:
Declare Bankruptcy
Face a $300, 000 penalty per year.

Keep in mind, taxes do not need to be due nor does the transaction have to be proven illegal or illegitimate for this penalty to apply. The only proof required by the IRS is that the person did not properly and timely disclose a transaction that the IRS believes the person should have disclosed. It is important to note in this context that for non-disclosed listed transactions, the Statue of Limitations does not begin until a proper disclosure is filed with the IRS.

Many practitioners believe the scope and authority given to the IRS under 6707A, which allows the IRS to act as judge, jury and executioner, is unconstitutional. Numerous real life stories abound illustrating the punitive nature of the 6707A penalty and its application to small businesses and their owners. In one case, the IRS demanded that the business and its owner pay a 6707A total of $600, 000 for his and his business’ participation in a Code section 412(i) plan. The actual taxes and interest on the transaction, assuming the IRS was correct in its determination that the tax benefits were not allowable, was $60, 000. Regardless of the IRS’s ultimate determination as to the legality of the underlying 412(i) transaction, the $600, 000 was due as the IRS’s determination was final and absolute with respect to the 6707A penalty. Another case involved a taxpayer who was a dentist and his wife whom the IRS determined had engaged in a listed transaction with respect to a limited liability company. The IRS determined that the couple owed taxes on the transaction of $6, 812, since the tax benefits of the transactions were not allowable. In addition, the IRS determined that the taxpayers owed a $1, 200, 000 section 6707A penalty for both their individual nondisclosure of the transaction along with the nondisclosure by the limited liability company.

Even the IRS personnel continue to question both the legality and the fairness of the IRS’s imposition of 6707A penalties. An IRS appeals officer in an email to a senior attorney within the IRS wrote that “…I am both an attorney and CPA and in my 29 years with the IRS I have never {before} worked a case or issue that left me questioning whether in good conscience I could uphold the Government’s position even though it is supported by the language of the law.” The Taxpayers Advocate, an office within the IRS, even went so far as to publicly assert that the 6707A should be modified as it “raises significant Constitutional concerns, including possible violations of the Eighth Amendment’s prohibition against excessive government fines, and due process protection.”

Senate bill 765, the bill sponsored by Senator Nelson, seeks to alleviate some of above cited concerns. Specifically, the bill makes three major changes to the current version of Code section 6707A. The bill would allow an IRS imposed 6707A penalty for nondisclosure of a listed transaction to be rescinded if a taxpayer’s failure to file was due to reasonable cause and not willful neglect. The bill would make a 6707A penalty proportional to an understatement of any tax due.

Accordingly, non-tax paying entities such as S corporations and limited liability companies would not be subject to a 6707A penalty (individuals, C corporations and certain trusts and estates would remain subject to the 6707A penalty).

There are a number of interesting points to note about this action:
1. In the letter, the IRS acknowledges that, in certain cases, the penalty imposed by section 6707A for failure to report participation in a “listed transaction” is disproportionate to the tax benefits obtained by the transaction.
2. In the letter, the IRS says that it is taking this action because Congress has indicated its intention to amend the Code to modify the penalty provision, so that the penalty for failure to disclose will be more in line with the tax benefits resulting from a listed transaction.


3. The IRS will not suspend audits or collection efforts in appropriate cases. It cannot suspend imposition of the penalty, because, at least with respect to listed transactions, it does not have the discretion to not impose the penalty. It is simply suspending collection efforts in cases where the tax benefits are below the penalty threshold in order to give Congress time to amend the penalty provision, as Congress has indicated to the IRS it intends to do.
4. The legislation does not change the penalty provisions for material advisors.
This is taken directly from the IRS website:

“Congress has enacted a series of income tax laws designed to halt the growth of abusive tax avoidance transactions. These provisions include the disclosure of reportable transactions. Each taxpayer that has participated in a reportable transaction and that is required to file a tax return must disclose information for each reportable transaction in which the taxpayer participates. Use Form 8886 to disclose information for each reportable transaction in which participation has occurred. Generally, Form 8886 must be attached to the tax return for each tax year in which participation in a reportable transaction has occurred. If a transaction is identified as a listed transaction or transaction of interest after the filing of a tax return (including amended returns), the transaction must be disclosed either within 90 days of the transaction being identified as a listed transaction or a transaction of interest or with the next filed return, depending on which version of the regulations is applicable.”

Lance Wallach, CLU, ChFC, CIMC, speaks and writes about benefit plans, tax reductions strategies, and financial plans. He has authored numerous books for the AICPA, Bisk Total tape, and others. He can be reached at (516) 938-5007 or [email protected]. For more articles on this or other subjects, feel free to visit his website at www.vebaplan.com.

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.vebaplan.com.

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.

Big Trouble Ahead For Many 419 Welfare Benefit Plan and 412i Retirement Plan Participants
Aug 25, 2010
By Lance Wallach

Business owners and professionals who have adopted 419 welfare benefit plan arrangements are in serious trouble. The IRS has attacked these arrangements as "listed transactions." Business owners who engage in a "listed transaction" must report such transactions on IRS Form 8886 every year that they are participating in the transaction, and you are participating even in years when you do not make any contribution. Internal Revenue Code 6707A imposes severe penalties ($200, 000 annually for a business and $100, 000 per year for an individual) for failure to file Form 8886 with respect to a listed transaction. Tax Court, according to both the IRS Appeals Office and its own decisions, does not have jurisdiction to abate or lower any penalties imposed by the IRS. Complaints caused Congress to impose a moratorium on collection of Section 6707A penalties. On June 1, 2010, the moratorium ended, and the IRS immediately began sending out notices warning of possible imposition of 6707A penalties. When you get this notice it should be taken very seriously.
Accountants were required to properly prepare and file Form 8918 (if they signed and/or prepare tax returns and got paid). The penalty for accountants for not properly filing the forms is $100, 000, or $200, 000 if they are incorporated.
Businesses that were in some 419 welfare benefit plans or some 412i retirement as well as some Captive Insurance and Section 79 Plans, were supposed to properly file under IRC Section 6707A each year with the IRS. Either the taxpayer or the accountant was responsible, though the ultimate, primary obligation falls on the taxpayer. The IRS has just begun sending the notices referred to above to participants in many of these plans. This is in addition to any IRS audit you might have had or currently may be having. The large 6707A fine has nothing to do with any other IRS audit. The 6707A fine is for not having properly filed under 6707A with your returns. You are required to file each year with your tax return.
Not only were you required to file with your Federal return, but many states also require protective filings. Some participants in these types of plans have already received notices from the IRS. You must act immediately if you wish to avoid possible huge IRS penalties and interest that could put you out of business for good.
THE STATUTE OF LIMITATIONS IS NOT RUNNING. This means that the IRS can fine you at any time in the future for anything regarding past or present participation in an abusive 419 welfare benefit plan or an abusive 412i retirement plan. There is still time to avoid the IRS penalties and interest. You need to take action immediately and find out right away if the plan you are participating in is abusive by consulting with a professional and experienced 419/412i plan expert.
Most accountants do not know how to properly prepare the appropriate forms. Accountants or other advisors will probably be fined as material advisors. This means that you may be subject to a large fine. Once you get the large fine, the IRS claims it is not subject to an appeal.
You should have filed protectively for every year your entity participated in the plan. Once again, for every year after 2003, the penalty for not properly filing is $200, 000 a year for corporations and $100, 000 a year for individuals. For example, it is possible an employer in the plan since 2004 could be subject to over one million dollars in penalties solely as a result of the failure to file. For all years in the plan, the Statute of Limitations will not begin to run until after the form is properly filed. In addition, certain individual plan participants should also file for every year of plan participation. Once again, none of this has anything to do with any other audit that you may currently be involved in or may previously have experienced.
It is abundantly clear that taxpayers who receive notices from the IRS regarding Section 6707A penalties should take these letters extremely seriously. These notices do not lend themselves to "do-it-yourself eye surgery".

Read more: http://www.articlesbase.com/taxes-articles/big-trouble-ahead-for-many-419-welfare-benefit-plan-and-412i-retirement-plan-participants-3128254.html#ixzz0xjnc8ClU
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Lance Wallach - About the Author:
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 Pubic 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, [email protected], or visit http://www.taxadvisorexperts.org or http://www.taxaudit419.com.