BenistarAduits.com Benistar Benistar 419is despite the fact that payment of benefits by Benistar seemed to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was never a reason to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curico assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 andclaimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886, Reportable Transaction Disclosure Statement, or similar disclosure. The IRS disallowed the latter deduction and adjusted the 2005 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. The IRS also assessed tax deficiencies and the enhanced 30% penalty totaling almost $21,000 against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.
More You Should Know
· In recent years, some section 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that could be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan. Effective February 13, 2004, the purchase of excessive life insurance in any plan is considered a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance. · By itself, a 412(i) plan is not a listed transaction; however, the IRS has a task force auditing 412(i) plans. · An employer has not engaged in a listed transaction simply because it is a 412(i) plan. · Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan engaged in a listed transaction. Some 412(i) plans have been audited and sanctioned for issues not related to listed transactions.
Companies should carefully evaluate proposed investments in plans such as the Benistar plan. The claimed deductions will not be available and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34. In addition, under IRC 6707A, IRS fines participants a large amount of money for not properly disclosing their participation in listed, reportable, or similar transactions; an issue that was not before the Tax Court in either Curico or McGehee. The disclosure needs to be made for every year the participant is in a plan. The forms need to be filed properly even for years that no contributions are made. I have received numerous calls from participants who did disclose and still got fined because the forms were not filled in properly. A plan administrator told me that he helps hundreds of his participants file forms, and they all still received very large IRS fines for not filling in the forms properly.
Lance Wallach is National society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals. 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.lancewallach.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.
BenistarAduits.com
ReplyDeleteBenistar
Benistar 419is despite the fact that payment of benefits by Benistar
seemed to be contingent upon an unanticipated event (the death of the
insured while employed). As long as plan participants were willing to
abide by Benistar’s distribution policies, there was never a reason to
forfeit a policy to the plan. In fact, in estimating life insurance rates, the
taxpayers’ expert in Curico assumed that there would be no forfeitures,
even though he admitted that an insurance company would generally
assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May
2001 andclaimed deductions for contributions to it in 2002 and 2005.
The returns did not include a Form 8886, Reportable Transaction
Disclosure Statement, or similar disclosure.
The IRS disallowed the latter deduction and adjusted the 2005 return
of shareholder Robert Prosser and his wife to include the $50,000
payment to the plan. The IRS also assessed tax deficiencies and the
enhanced 30% penalty totaling almost $21,000 against the clinic and
$21,000 against the Prossers. The court ruled that the Prossers failed
to prove a reasonable cause or good faith exception.
More You Should Know
· In recent years, some section 412(i) plans have been funded with
life insurance using face amounts in excess of the maximum death
benefit a qualified plan is permitted to pay. Ideally, the plan should limit
the proceeds that could be paid as a death benefit in the event of a
participant’s death. Excess amounts would revert to the plan. Effective
February 13, 2004, the purchase of excessive life insurance in any
plan is considered a listed transaction if the face amount of the
insurance exceeds the amount that can be issued by $100,000 or more
and the employer has deducted the premiums for the insurance.
· By itself, a 412(i) plan is not a listed transaction; however, the
IRS has a task force auditing 412(i) plans.
· An employer has not engaged in a listed transaction simply
because it is a 412(i) plan.
· Just because a 412(i) plan was audited and sanctioned for
certain items, does not necessarily mean the plan engaged in a listed
transaction. Some 412(i) plans have been audited and sanctioned for
issues not related to listed transactions.
Companies should carefully evaluate proposed investments in plans
such as the Benistar plan. The claimed deductions will not be available
and penalties will be assessed for lack of disclosure if the investment is
similar to the investments described in Notice 95-34. In addition, under
IRC 6707A, IRS fines participants a large amount of money for not
properly disclosing their participation in listed, reportable, or similar
transactions; an issue that was not before the Tax Court in either
Curico or McGehee. The disclosure needs to be made for every year
the participant is in a plan. The forms need to be filed properly even
for years that no contributions are made. I have received numerous
calls from participants who did disclose and still got fined because the
forms were not filled in properly. A plan administrator told me that he
helps hundreds of his participants file forms, and they all still received
very large IRS fines for not filling in the forms properly.
Lance Wallach is National society of Accountants Speaker of the Year
and member of the AICPA faculty of teaching professionals. 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.lancewallach.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.