I am searching for the help of an actuary

[RayJJohnsonJr]

Hi, I am searching for the help of an enrolled actuary. I have contacted several for help, but none were willing to assist. The IRS wants a 412(i) Plan that I installed and administer either unwound or retroactively converted to a regular 412 DB Plan. It is a 1 participant Plan with 4 contribution years (2003 through 2006). What we are trying to find out first is the amount of contributions that would be disallowed (if any) when calculated as a regular DB by an actuary. Attached are the facts of the plan including Salary and Benefit History as well as Contribution and Earnings History.

Of course, I am willing to pay for services rendered.

Thank you, in advance, for your assistance.

Rene J. Neyrey, CLU, ChFC

[Edited to remove participant name from attachment]

Historical_Factsheet.pdf

[Belgarath]

Rene - maybe you already cleared it with your client, or maybe the name is already changed. If not, you have your client's name, DOB, and salary history posted on the internet, so you might want to delete or change the name. Just thought I'd point it out in case it is an oversight.

[RayJJohnsonJr]

Rene - maybe you already cleared it with your client, or maybe the name is already changed. If not, you have your client's name, DOB, and salary history posted on the internet, so you might want to delete or change the name. Just thought I'd point it out in case it is an oversight.

THANK YOU! Belgarath. I missed that?

Rene

[Mike Preston]

I have done a number of these and you can contact me if you want to. They are not as simple as the client would like because the IRS has made up certain rules with respect to valuation of assets and allowable calculations that are difficult to navigate for those who have not done it before and only marginally less difficult to navigate if one has, because they demand a lot of information in very specific formats, even though some of the information would be completely irrelevant.

At first blush, though, if the actuary engages in a negotiation with the IRS that proves fruitful, almost none of the first three years will be disallowed while the fourth year is potentially at serious risk.

Of course, that is not to say that anybody (even me) can guarantee a fruitful negotiation with the IRS.

After just a quick glance, are the insurance contracts in force merely annuity contracts? If so, I wonder why the IRS is pushing this? Is there something else going on that isn't apparent from the attachment?

In any event, this stuff takes more time than it makes sense to spend, which is, I believe, part of the IRS' game plan.

Good luck.

[Guest VEBAPLAN]

Mike is a smart man, and I agree with him about the IRS. Your client will also be fined under 6707A if he has not filed CORRECTLY. Form 8886 needs to be done the correct way.

NEW JERSEY ASSOCIATION OF

ACCOUNTANTS

NEWSLETTER

JANUARY 2009

IRS Small Business and Self-Employed Division Will Emphasize Enforcement Activities over the Next Year

By Lance Wallach

Over the next 12 months, the Small Business and Self-Employed Division (SB/SE) of the Internal Revenue Service will focus on taxpayer services and increased enforcement. SB/SE owns the majority of the tax gap. Enforcement has a necessary presence when you are talking about tax administration.

However, that enforcement will recognize that there are taxpayers who cannot properly prepare their tax returns, taxpayers who will not properly prepare their returns and some who truly need assistance with compliance. That is coupled and balanced with, in many cases, education and taxpayer services. How such “recognition” will occur is unclear.

Some of the areas SB/SE will be examining include passthrough entities, high income filers and abusive transactions. S corporations are likely to receive particular scrutiny. Further review would not be limited to S corporations, but would extend to pass through entities like partnerships, which can expect to receive a “significant amount of attention” because SB/SE has found an area of abuse and would like to curb what is called a growing trend of abusive transactions. There also will be a renewed effort to address high income filers, typically classified as those with an adjusted gross income of over $200,000.

Bruce Hink, who has given me permission to utilize his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners. What follows is a story about Bruce Hink and how the IRS fined him $200,000 a year for being in what they called “a listed transaction”. In addition, I believe that the accountant who signed the tax return and the insurance agent who sold the retirement plan will each be fined $200,000 as material advisors. We have received a large number of calls for help from accountants, business owners and insurance agents in similar situations. Don’t think this will happen to you? It is happening to a lot of accountants and business owners, because most of these so called listed, abusive plans, or plans substantially similar to the so-called listed, abusive plans are currently being sold by most insurance agents currently.

Recently I came across a case where a small business owner is facing $400,000 in IRS penalties for 2004 and 2005 for his 412i plan. ( IRC6707A)

In 2002, an insurance agent representing a 100 year-old well established insurance company suggested the owner start a pension plan. The owner was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and give an opinion on. The CPA gave the plan the green light and the plan was started for tax year 2002.

Contributions were made in 2003. Then the administrator came out with amendments to the plan, based on new IRS guidelines, in October of 2004.

The business owner’s agent disappeared in May of 2005 before implementing the new guidelines from the administrator with the insurance company. The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that had not been applied, and without an agent.

It took 6 months of making calls to the insurance company to get a new insurance agent assigned. By then, the IRS had started an examination of the pension plan. Asking advice from the CPA and local attorney (who had no previous experience in such cases) made matters worse, with a “big name” law firm being recommended and over $30k in additional legal fees being billed in three months.

To make a long story short, the audit stretched on for over 2 ½ years to examine a 2 year old pension with 4 participates and $178,000 in contributions.

During the audit, no funds went to the insurance company, which was awaiting IRS approval on restructuring the plan as a traditional defined benefit plan, which the administrator had suggested and which IRS had indicated would be acceptable. The $90,000 2005 contribution was put into the company’s retirement bank account along with the 2004 contribution.

In March of 2008, the business owner received an apology from the IRS agent that headed the examination.

The IRS denied any appeal and ruled in October 2008 that the $400,000 penalty would stand.

Could you or one of your clients be next?

Even this sympathetic IRS agent thinks there is a problem with the IRS enforcement of these Draconian penalties. Below is one of her emails to the business owner who was fined $400,000.

From: Kowalski Jean M <Jean.M.Kowalski@irs.gov>

Date: Tue, Mar 4, 2008 at 7:12 AM

Subject: RE: Urgent

To: Bruce Hink <brucethink@gmail.com>

Thanks Bruce - yes - please just overnight them to the Grand Rapids address. Once again, I'm sorry about this. Basically, our Counsel told us that we needed language specific to the IRC 6707A penalty in order for that statute to be extended. I will ask the Reviewer to hold off an extra day.

I'm also very sorry that this is getting you down. Deeply sorry. Its very difficult for me as well - before I started working this project (412(i)) I was doing audits of 401(k) and profit sharing plans. If there was an error in the plan, the employer would just fix it and the audit was over. There wasn't anything controversial or adversarial about it - and I felt like I was helping people - employers and plan participants. I really liked my job. In two years time, that has completely changed. I know its not very "professional" to make such confessions - so forgive me. But I guess I just wanted you to know that I really sympathize with your situation - and have been doing whatever I can to help. I know that having this hanging over your head can't be fun - but as this project goes forward - I think that the IRS is going to have to soften their position somewhat - so these delays may be to your benefit.

Also, I'm not really supposed to be sending emails to you - but when I went through the file I couldn't find a good phone number for you. Could you just send me a note or an email with a current phone number?

Looking to receive the signed 872s on Thursday. If you have any questions at any time - please call me at 616-235-1297. I'm usually in the office in the mornings.

Lines From Lance

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 and has written numerous best-selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Business Hot Spots. 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.

[Belgarath]

Mike - I'm sure Rene will fill you in, but based upon the information given as to contributions and the account balance, I don't believe there could possibly be life insurance in this plan. You'd never have that much cash in the account value relative to total contributions in the early years of a plan if there were insurance.

[Mike Preston]

Belgarath, point well taken. It is marginally possible that the plan is a combination plan and the amounts shown are the combined premiums and the combined values. Just barely.

Also, in this vein (and in this case, I mean a stretched out, almost completely irrational one), it is theoretically possible that the face amount of insurance exceeds the incidental benefit limitations by $100,000.

With that tenuous hold on reality I am refraining from deleting VEBAPLAN's almost completely irrational post (proving he did not read or understand the attachment that Rene posted) about the 8886 just so I can point out that anybody who thinks they need to file an 8886 on a plan that does not provide for insurance in excess of $100,000 of the incidental benefit limitations (or circumstances identified in the Listed Transactions rules) is merely trying to spread paranoia.

I am, however, tempted to remove the spam portion of his post since Dave is already on record as having asked him not to post historical articles and instead provide a link. If my finger is still itching later in the day I will remove his spam, at least.

[Jim Norman]

If my finger is still itching later in the day I will remove his spam, at least.

I got some itching powder I can lend you.

Jim

[RayJJohnsonJr]

I would like to thank everyone who replied, and apologize. For some reason, I stopped getting email notices when someone replied to my post, I don't know why. I figured no one was interested.

To Mike Preston: Thank you, but an out-of-work actuary contacted me by email and handled the IRS negotiation with me. It looks like we can amend The Plan to a regular 412 DB since inception and avoid any loss of tax deductions for the client. The Plan was fully funded with Annuities, no life insurance. Why the IRS picked on this Plan is a mystery, but once they get hold of a 412(i) they seem to always reach the same conclussion: amend to regular 412 DB or unwind The Plan. The 1st things they always attack are, 1) The 1st year premium was not paid during the 1st year of employee participation, 2) The premiums were not level, 3) The Annuity monthly income at NRA does not equal the employee's Plan benefit at NRA.....Therefore, Plan is disqualified for 412(i).

Thanks again,

Rene

[Guest VEBAPLAN]

Can you email the name of the out of work man who helped you. lawallach@aol.com thanks

[Guest VEBAPLAN]

6707A IRS fines bill passed. If your clients did not file properly the fines are now going to be collected by IRS. People reading this may be material advisors. Your fines were not in the bill.

[Guest VEBAPLAN]

The new law Guarantees A Substantial Fine for business owners and others.

The bill reducing fines for improperly or not filing under 6707A has passed. That sigh of relief you heard last week might have come from people participating in the plans named above, or anything seeking tax relief that is similar to them – what the IRS calls a listed transaction. People think that Congress bailed them out of trouble for participation in such transactions, and that the excessive fines that were being imposed are now a thing of the past. While the situation is certainly better than it was for some people, and while I do not want to rain on anyone’s parade, you are still in Disasterville, and the next to last bus out just left.

Consider this: The new legislation calls for MINIMUM penalties of $5,000 per person per year, and $10,000 for a business. That is $15,000 per year if you are incorporated. So, if you have been in a 419,412i ,captive insurance or section 79 plan since, say, 2003, you are looking at fines in excess of $100,000 before you even start to talk about how much of a tax benefit there has been.

Further fines would be seventy-five (75) percent of the tax benefit derived from participation in the transaction. These are also applied each year. The point is that you are looking at fines, in all likelihood, to some degree in the six-figure range.

You can possibly avoid all this still, by properly filing form 8886 IMMEDIATELY with the IRS. Time is especially of the essence now. You MUST file before you are assessed the penalty. For months the Service has been holding off on actually collecting from people that they assessed because they did not know what Congress was going to come up with. But now they do know, so they are going to move aggressively to collection with people they have already assessed. There is no reason not to now. This is especially true because the new legislation still does not provide for a right of appeal or judicial review. The Service is still judge, jury, and executioner. Its word is absolute as far as determining what is a listed transaction.

So you have to file form 8886 FAST; like NOW. But you also have to file it RIGHT. The Service treats forms that are incorrectly filed as if they were never filed. You get this fine for filing incorrectly or for not filing at all. The Statute of Limitations does not begin unless you properly file. That means IRS can come back to get you any time in the future unless you file properly.

You must take care as to WHO prepares the form. Most accountants have no idea how to file these forms late. They will simply follow the filing instructions, which presume a timely filing. If you did not file in a timely manner, you need someone who knows how to file the forms late without incurring the penalty. This is an art. I know probably the only two people who have filed dozens of forms late, or more, without anyone being penalized. They learned how by dozens of conversations with IRS personnel. I can put you in touch with either or both of them, and they can help 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 gives expert witness testimony and his side has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxadvisorexperts.org or www.taxaudit419.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

[Effen]

Lance,

Could you supply a reference to this bill that was passed? I see several bills that passed in the Senate, but haven't seen anything about a bill passing both houses or anything awaiting the President's signiture. (Other than on one of your other sites.)

[Guest VEBAPLAN]

Lance,

Could you supply a reference to this bill that was passed? I see several bills that passed in the Senate, but haven't seen anything about a bill passing both houses or anything awaiting the President's signiture. (Other than on one of your other sites.)

[Guest VEBAPLAN]

small business jobs act, or something like that. pres just signed it. feel free to call me 516 9385007 if you have questions.

[Effen]

http://www.whitehouse.gov/blog/2010/09/27/...-learn-whats-it