IRS Tax Shelters and 419 Plans Litigation
412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.
“419 Plans”: Employers and Promoters Face Serious Problems with the IRS
Date: 03/07/12 Topic: Audit Representation The bottom line. If you’re the owner of a small business with a “419 plan” for your employees, you may be in serious trouble with the IRS, either now or in the near future. And the same is true if you’ve sold one of these plans to a business. This blog post explains the details. This post is a bit technical, but so is tax law. The typical scenario. Here is the typical situation. A closely held business is sold, along with other employers, a welfare benefit plan-an “IRC 419 Plan”-and is told by the plan promoter that the employer’s contributions to the multiple employer welfare benefit fund are tax deductible when paid. In almost every case, this is mistaken. An employer’s contributions to certain §§ 419 and 419A plans are deductible, but that is the exception, not the general rule. What is happening is that the promoters of most § 419 plans tell the employer’s they sell the plans to that contributions to the plan meet that exception but, again, most of the time that is mistaken. The Details. Tax Law – A “welfare benefit plan” is a plan that provides certain benefits, like medical or death benefits, to employees or their beneficiaries. The general rule is that an employer’s contributions to a welfare benefit plan are deductible when paid only if (1) they qualify for an “ordinary and necessary” business expense (which must meet a certain definition set by 26 U.S.C. §162 and underlying regulations), and (2) only to the extent it’s allowed under 26 U.S.C. §§419 and 419A, which place some rather strict limits on the amount an employer may deduct. However, a narrow exemption (found in § 419A(f)(6)) to the general rule of §§419 and 419A is carved out, permitting deductions beyond the limitations of (2), above. It is the exemption that the promoters of certain “419 plans” claim is satisfied by their plan; most of the time, however, it is not. Generally, to qualify for the exemption, an employer must be (i) contributing to a welfare benefit fund that is part of a 10 or more employer plan, (ii) is precluded from contr
“419 Plans”: Employers and Promoters Face Serious Problems with the IRS
ReplyDeleteDate: 03/07/12
Topic: Audit Representation
The bottom line.
If you’re the owner of a small business with a “419 plan” for your employees, you may be in serious trouble with the IRS, either now or in the near future. And the same is true if you’ve sold one of these plans to a business. This blog post explains the details. This post is a bit technical, but so is tax law.
The typical scenario.
Here is the typical situation. A closely held business is sold, along with other employers, a welfare benefit plan-an “IRC 419 Plan”-and is told by the plan promoter that the employer’s contributions to the multiple employer welfare benefit fund are tax deductible when paid. In almost every case, this is mistaken.
An employer’s contributions to certain §§ 419 and 419A plans are deductible, but that is the exception, not the general rule. What is happening is that the promoters of most § 419 plans tell the employer’s they sell the plans to that contributions to the plan meet that exception but, again, most of the time that is mistaken.
The Details.
Tax Law –
A “welfare benefit plan” is a plan that provides certain benefits, like medical or death benefits, to employees or their beneficiaries.
The general rule is that an employer’s contributions to a welfare benefit plan are deductible when paid only if (1) they qualify for an “ordinary and necessary” business expense (which must meet a certain definition set by 26 U.S.C. §162 and underlying regulations), and (2) only to the extent it’s allowed under 26 U.S.C. §§419 and 419A, which place some rather strict limits on the amount an employer may deduct.
However, a narrow exemption (found in § 419A(f)(6)) to the general rule of §§419 and 419A is carved out, permitting deductions beyond the limitations of (2), above. It is the exemption that the promoters of certain “419 plans” claim is satisfied by their plan; most of the time, however, it is not.
Generally, to qualify for the exemption, an employer must be (i) contributing to a welfare benefit fund that is part of a 10 or more employer plan, (ii) is precluded from contr