Monday, April 9, 2018

Are You Being Aggressive Enough (Legally)?


Are You Being Aggressive, Enough (Legally)?


     By Lance Wallach, CLU, CHFC 

The question in the 80′s used to be, “How far can I push it before I get audited?” However, with increased IRS enforcement, it’s now important to ask, “Will I pass an IRS audit?”

The IRS today now uses sophisticated statistical analysis with modern technology that identifies tax returns likely to yield an additional tax liability assessment.
In other words, if your numbers don’t make sense, the computers can detect these out-of-whack ratios with ease. What this means practically is that you can’t play the “audit lottery” anymore. The computers are just too good.

The question now becomes, “How can we be aggressive, legally?”
And the answer is simple: PLANNING. Actually, Year-round PLANNING.
So long as you pre-plan your tax strategy, and make sure you have ample proof to back yourself up in the implementation of the plan, there is no need to be worried about an IRS audit.

You can still be aggressive; you just need to be pro-active.

Some suggestions are have you maxed out your pension contribution? Do you have an HSA? Are you taking deductions for having an office in your home? Do you use a K or double K plan for large deductions? Have you reviewed the IRS industry specialization manual for your industry to see what the IRS is looking hard at this year?

Is your accountant an IRS tax collector, or your protector? Accountants now have to notify the IRS of some deductions on YOUR return, or be fined a minimum of $100,000. A lot of audits result from this. The form that your accountant has to file is confidential.

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 bestselling 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, call 516-938-5007.

Copyright Lance Wallach, CLU, CHFC - Google+
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Disclaimer: 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.

Watch out because the IRS is watching 419 Plans

Watch out because the IRS is watching 419 Plans


     By Lance Wallach, CLU, CHFC 


A business owner wants legitimate tax planning ideas. One solution sometimes offered today is a 419(e) plan (419 Welfare Benefit Plan). The local insurance agent or the company’s CPA who may have an insurance sales license, may suggest that the 419 Welfare Benefit Plan will provide shelter from taxes today, the costs of the plan are tax deductible and the plan will provide tax free benefits for the owner when he or she is ready to retire. The concept seems too good to be true.

Watch out because the IRS is watching, and it often says that the plan is too good to be true.

A 419 Welfare Benefit Plan is generally a plan set up in the form of a trust to provide certain benefits to the employees of a company. You will notice that the term trust is used because the large whole life insurance policies that the owner is instructed to buy go into a trust where neither the company nor the business owner actually owns them. The trust owns the policies.

The insurance agent or CPA wants you to set up a 419(e) plan because you are agreeing to buy high dollar life insurance with premiums payable until you retire. That can generate fees of up to 125% of the first year premium as a commission – that’s right; you read that correctly – 125%.

The plan is sold as a win-win for everyone. It is for the insurance company because it locks the business owner into long-term, expensive insurance. It is for the trust administrator (remember: the insurance policies must be put into a trust to make the plan work) because the business owner has to pay a fee every year to administer the plan. But for the business owner? Maybe not so much!

The big sales pitch often is that the contributions are tax deductible to the business and the business can exclude employees. Moreover, the seller promises that the big insurance policies that are paid for with tax free money can be cashed out or transferred from the trust to the business owner at some later date without paying taxes. It is all so easy: no taxes in and no taxes out. Good right?

Unfortunately, it is often too good to be true. The IRS has been actively attacking such 419 Welfare Benefit Plans as TAX SHELTERS. If a transaction is classified as a tax shelter then the salesperson and your CPA are supposed to tell you to file an 8886 form which highlights tax shelters to the IRS. Think of it as a beacon so that the IRS knows who to come pursue for taxes, penalties, interest and listed transaction charges.
The IRS focus on 419(e) plans came up in a case identified as Curcio v. Commissioner of Internal Revenue, T.C. Memo 2010-115.

The end result was a financial disaster for the company that took the ordinary business deductions for the plan and the individual taxpayers that also took deductions on their personal taxes.
If something goes wrong on one of these plans (as it often does) who does the business owner look to? The insurance company will claim in defense that it simply sold insurance. The agent or the CPA will claim that it was the responsibility of the third party administrator (TPA) to make sure that the plan was solid and lawful. The TPA will claim that the business owner is not the owner of the product and cannot sue because it was in a trust. The business owner is often left facing the IRS on his or her own while paying other professionals to correct the tax situation.
If you are a business person in a 419(e) plan you should contact Lance Wallach.

ABOUT THE AUTHOR: Lance Wallach
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.

Copyright Lance Wallach, CLU, CHFC
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Disclaimer: 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 le

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Tuesday, April 25, 2017

IRS Offer In Compromise

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