Showing posts with label 412i Plan. Show all posts
Showing posts with label 412i Plan. Show all posts
Taxlibrary
Taxlibrary
Learning Objectives
Introduction
Building the Perfect Retirement Plan
SEP IRA: The Good
SEP IRA: The Bad
SEP IRA: The Ugly
The K
The Double K
Defined Benefit Plans
Adding Survivor Benefits
412(i) Defined Benefit Plan
Cash Balance Plans
VEBAs and 419 Plans
Taxability of Trust Net Income
Taxability of Excess Benefits
Group-Term Life Insurance Plan
Post-Retirement Medical Benefit
Voluntary Employees Beneficiary Association (VEBA) - Commentary
New Development - Welfare Benefit Plans under Section 419(e)
Executive Carve Out Long-Term Care
What Is Long-Term Care?
How Much Does It Cost
Benefits of Long-Term Care Insurance to Employees
Benefits of Long-Term Care Insurance to Employers
Executive Carve Out Long-Term Care
Taxability
Long-Term Care Insurance Premium Deductibility
2007 Eligible Long-Term Care Insurance Premium
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Author/Moderator: Lance Wallach, CLU, CHFC, CIMCPublisher: AICPA
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Author/Moderator: Lance Wallach, CLU, CHFC, CIMCPublisher: AICPA
Availability: In Stock
Learning Objectives
Introduction
Building the Perfect Retirement Plan
SEP IRA: The Good
SEP IRA: The Bad
SEP IRA: The Ugly
The K
The Double K
Defined Benefit Plans
Adding Survivor Benefits
412(i) Defined Benefit Plan
Cash Balance Plans
VEBAs and 419 Plans
Taxability of Trust Net Income
Taxability of Excess Benefits
Group-Term Life Insurance Plan
Post-Retirement Medical Benefit
Voluntary Employees Beneficiary Association (VEBA) - Commentary
New Development - Welfare Benefit Plans under Section 419(e)
Executive Carve Out Long-Term Care
What Is Long-Term Care?
How Much Does It Cost
Benefits of Long-Term Care Insurance to Employees
Benefits of Long-Term Care Insurance to Employers
Executive Carve Out Long-Term Care
Taxability
Long-Term Care Insurance Premium Deductibility
2007 Eligible Long-Term Care Insurance Premium
Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach
Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach
What are 412(i) Plans and what are the problems with these plans
What are 412(i) Plans and what are the problems with these plans
412(i) is a provision of the tax code. A 412(i) plan is a defined pension plan. A 412(i) plan differs from other defined benefit pension plans in that it must be funded exclusively by the purchase of individual life insurance products (insurance and annuities). It provides specific retirement benefits to participants once they reach retirement and must contain assets sufficient to pay those benefits. To create a 412(i) plan, there must be a plan to hold the assets. The employer funds the plan by making cash contributions to the plan, and the Code allows the employer to take a tax deduction in the amount of the contributions, i.e. the entire amount.
The plan uses the contributed funds to purchase some combination of life insurance products (insurance or annuities) for the plan. As the plan participants retire, the plan will usually sell the policies for their present cash value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified retirement benefit to plan participants.
Where did the problems start?
In the late 1990's brokers and promoters such as Kenneth Hartstein, Dennis Cunning, and others began selling 412(i) plans designed with policies created and sold through agents of Pacific Life, Hartford, Indianapolis life, and American General. These plans were sold or administered through companies such as Economic Concepts, Inc., Pension Professionals of America, Pension Strategies, L.L.C. and others.
These plans were very lucrative for the brokers, promoters, agents, and insurance companies. In addition to the costs associated with administering the plans, the policies of insurance had high commissions and high surrender charges.
These plans were often described as Pendulum Plans, or other similar names. In theory, the plans would work as follows. After the defined pension plan was set up, the plan would purchase a life insurance policy insuring the life of an individual. The plan would have no cash value (and high surrender charges) for 5 or more years. The Corporation would pay the premium on the policy and take a deduction for the entire amount. In year 5, when the policy had little or no cash value, the plan would transfer the policy to the individual, who would take it at a greatly reduced basis. Subsequently, the policy would bloom like a rose, and the individual would have a policy with significant cash value which he or she could withdraw tax free.
Who signed off on the plan?
Attorney Richard Smith at the law firm of Bryan Cave issued tax opinion letters opinion which stated that many of the plans complied with the tax code.
So what is the problem?
In the early 2000s, IRS officials began questioning Richard Smith and others and giving speeches at benefits conferences wherein they took the position that these plans were in violation of both the letter and spirit of the Internal Revenue Code.
In February 2004, the IRS issued guidance on 412(i) and began the process of making plans "listed transactions." Taxpayers involved in listed transaction are required to report them to the IRS. These transactions are to be reported using a form 8886. The failure to file a form 8886 subjects individual to penalties of $100,000 per year, and corporations $200,000 per year. These penalties are often referred to as section 6707 penalties. Advisors of these plans are required to maintain records regarding these plans and turn them over to the IRS, upon demand.
In October of 2005, the IRS invited those who sponsored 412(i) plans that were treated as listed transactions to enter a settlement program in which the taxpayer would recind the plan and pay the income taxes it would have paid had it not engaged in the plan, plus interest and reduced penalties.In late 2005, the IRS began obtaining information from advisors and actively auditing plans and more recently, levying section 6707 penalties.
The plan uses the contributed funds to purchase some combination of life insurance products (insurance or annuities) for the plan. As the plan participants retire, the plan will usually sell the policies for their present cash value and purchase annuities with the proceeds. The revenue stream from the annuities pays the specified retirement benefit to plan participants.
Where did the problems start?
In the late 1990's brokers and promoters such as Kenneth Hartstein, Dennis Cunning, and others began selling 412(i) plans designed with policies created and sold through agents of Pacific Life, Hartford, Indianapolis life, and American General. These plans were sold or administered through companies such as Economic Concepts, Inc., Pension Professionals of America, Pension Strategies, L.L.C. and others.
These plans were very lucrative for the brokers, promoters, agents, and insurance companies. In addition to the costs associated with administering the plans, the policies of insurance had high commissions and high surrender charges.
These plans were often described as Pendulum Plans, or other similar names. In theory, the plans would work as follows. After the defined pension plan was set up, the plan would purchase a life insurance policy insuring the life of an individual. The plan would have no cash value (and high surrender charges) for 5 or more years. The Corporation would pay the premium on the policy and take a deduction for the entire amount. In year 5, when the policy had little or no cash value, the plan would transfer the policy to the individual, who would take it at a greatly reduced basis. Subsequently, the policy would bloom like a rose, and the individual would have a policy with significant cash value which he or she could withdraw tax free.
Who signed off on the plan?
Attorney Richard Smith at the law firm of Bryan Cave issued tax opinion letters opinion which stated that many of the plans complied with the tax code.
So what is the problem?
In the early 2000s, IRS officials began questioning Richard Smith and others and giving speeches at benefits conferences wherein they took the position that these plans were in violation of both the letter and spirit of the Internal Revenue Code.
In February 2004, the IRS issued guidance on 412(i) and began the process of making plans "listed transactions." Taxpayers involved in listed transaction are required to report them to the IRS. These transactions are to be reported using a form 8886. The failure to file a form 8886 subjects individual to penalties of $100,000 per year, and corporations $200,000 per year. These penalties are often referred to as section 6707 penalties. Advisors of these plans are required to maintain records regarding these plans and turn them over to the IRS, upon demand.
In October of 2005, the IRS invited those who sponsored 412(i) plans that were treated as listed transactions to enter a settlement program in which the taxpayer would recind the plan and pay the income taxes it would have paid had it not engaged in the plan, plus interest and reduced penalties.In late 2005, the IRS began obtaining information from advisors and actively auditing plans and more recently, levying section 6707 penalties.
Lance Wallach - Artcles - 419e 412i, tax shelters, IRS penalties, audits
Lance Wallach - Artcles - 419e 412i, tax shelters, IRS penalties, audits: IRS fines for being in listed transctions of 419e, 412i employee benefit plans, abusive tax shelters - tax shelters, "tax shelter fraud", 419e, 412i, 419, 412,irs audits, irs penalties, 6707a, 6707
Articles: How to get fines by the IRS: 419e 412i, tax shelters, IRS penalties, audits
Articles: How to get fines by the IRS: 419e 412i, tax shelters, IRS penalties, audits: tax shelters, "tax shelter fraud", 419e, 412i, 419, 412, listed transactions, irs audits, irs penalties, 6707a, 6707, defined benefit, pension plans, material advisors, tax shelters, retirement plans, insurance, insurance expert, life insurance, cpa, lawyers, attorneys
Lance Wallach - Article: AT&T& Verizon Unions Deal withRetireeCosts
Lance Wallach - Article: AT&T& Verizon Unions Deal withRetireeCosts: AT&T Inc., the biggest U.S. phonecompany, and No. 2 Verizon Communications Inc. may follow General Motors Corp. in trying to shift retiree health-care liabilities to a union-run fund, a move that has helped boost GM's shares 39 percent this year
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