By Lance Wallach
Being a new (Jewish) member of the Sons of Italy, I got to thinking about the next big bailout our government will have. That is, after this one raises everyone’s taxes and doesn’t work. You know…throwing billions to General Motors who will go bankrupt in a few years anyway and giving billions to AIG and the big brokerage firms so they can give bonuses to their executives…Oh, and how ‘bout handing over billions more to the states so they can continue to support with vigor, unemployment, welfare and other similar fixations that discourage people from looking for a job.
Maybe next year, just before we become a socialist country, we’ll have the biggest bailout of all. With a gun to our head, we’ll probably need to bail out the very organization that historically constitutes the economic perversion in this country and, in doing so; the resume of the Secretary of the Treasury will be forced to include “a lifetime of experience in organized crime and illegal affairs”. This way we could be assured of his qualifications for getting the job done. After all, how many loan sharks do you know whose loans are in default?
No longer does an entity like this need to fly below the radar. They’ve finally been superseded by the best of them, as they compete for turf with the U.S. Government. It becomes unnecessary to resort to the old way of doing things; why opt to “bodies in the trunk” for ransom when the real people being held hostage these days, are the poor-slob taxpayers.
In these difficult times, it would become this organization’s fiscal responsibility as well as their patriotic duty to behave like legitimate business people so they too could demand billions of dollars like GM and AIG. What’s the difference between giving it to them or squandering it on ineffective companies who haven’t a clue as to where the money is going (one would think they were given unmarked bills). Wait…I forgot; there’s a BIG difference. At least this organization doesn’t lose money on their investments. They have a way of making sure the return is guaranteed! In addition to giving the organization money, a further thirty billion would be set aside to protect the still-healthy loan shark sector from the “credit freeze” that has infected our banks.
Let’s face it, while banks and mortgage companies continue to go into default, you rarely run into someone who has not paid back money owed to a loan shark. Unlike banks which have closed their window on lending, the only time the organization sees fit to mimic these practices would be to close the window on the fingers of those who don’t pay up. Maybe the U.S. government should take a lesson…or two.
Although this article carries a humorous overtone, our current economic problems are serious issues that should be dealt with properly. Things are going to get a lot worse and people’s taxes are going to go up. In my opinion, working people like you and me will have to support the bailouts. I have not yet even mentioned the 51 plus billion the Obama State Budget intends to use to fund such things as aid to Palestinians in Gaza and other, useless foreign endeavors. Why not cut that budget and reduce our budget deficit. There are people suffering, right here in the U.S. who could benefit by some of those resources. Where’s their fair share?
Since I’m in the business of reducing taxes for my wealthy clients, as well as myself, I will not suffer like those reading this article. These people have the advantage of using people like me to reduce their taxes and make money in their retirement plans, even in a recession. I do however; help people that need help…sometimes, even for free.
If you want to get back some of your retirement plan losses or other losses, it’s not that difficult. Try some useful websites like www.financeexperts.org ; www.taxlibrary.us ;and www.IRS.gov. A few properly worded letters followed up by phone calls to the proper places usually result in getting some or all of your money back.
On the other extreme are lawsuits. I am now an expert witness in about 14 of them. In my last case, a business owner who lost $400,000 was awarded $800,000 by the jury. The judge, after listening to me on the witness stand for two days, commented that the broker was a crook. In my estimation, he was no different than almost all the other incompetent brokers that are out there serving the public. Be careful about lawyers because most of them will be happy to take your money but will not guarantee results. So far, all the cases I have been in have been victorious.
Enough about me; fire your financial planner insurance agent, get an accountant tax protector instead of your current accountant tax collector, and stop feeling sorry for yourself. There are a lot of opportunities out there and there is a lot of money to be made.
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, is quoted regularly in the press, 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.
Showing posts with label Retirement Plan. Show all posts
Showing posts with label Retirement Plan. Show all posts
Small business retirement plans fuel litigation
Dolan Media Newswires
Small business retirement plans fuel
litigation
Small businesses facing audits and
potentially huge tax penalties over certain types of retirement plans are
filing lawsuits against those who marketed, designed and sold the plans. The
412(i) and 419(e) plans were marketed in the past several years as a way for
small business owners to set up retirement or welfare benefits plans while
leveraging huge tax savings, but the IRS put them on a list of abusive tax shelters
and has more recently focused audits on them.
The penalties for such transactions are
extremely high and can pile up quickly - $100,000 per individual and $200,000
per entity per tax year for each failure to disclose the transaction - often
exceeding the disallowed taxes.
There are business owners who owe $6,000
in taxes but have been assessed $1.2 million in penalties. The existing cases
involve many types of businesses, including doctors' offices, dental practices,
grocery store owners, mortgage companies and restaurant owners. Some are trying
to negotiate with the IRS. Others are not waiting. A class action has been
filed and cases in several states are ongoing. The business owners claim that
they were targeted by insurance companies; and their agents to purchase the
plans without any disclosure that the IRS viewed the plans as abusive tax
shelters. Other defendants include financial advisors who recommended the
plans, accountants who failed to fill out required tax forms and law firms that
drafted opinion letters legitimizing the plans, which were used as marketing
tools.
A 412(i) plan is a form of defined benefit
pension plan. A 419(e) plan is a similar type of health and benefits plan.
Typically, these were sold to small, privately held businesses with fewer than
20 employees and several million dollars in gross revenues. What distinguished
a legitimate plan from the plans at issue were the life insurance policies used
to fund them. The employer would make large cash contributions in the form of insurance
premiums, deducting the entire amounts. The insurance policy was designed to
have a "springing cash value," meaning that for the first 5-7 years
it would have a near-zero cash value, and then spring up in value.
Just before it sprung, the owner would
purchase the policy from the trust at the low cash value, thus making a
tax-free transaction. After the cash value shot up, the owner could take
tax-free loans against it. Meanwhile, the insurance agents collected exorbitant
commissions on the premiums - 80 to 110 percent of the first year's premium,
which could exceed $1 million.
Technically, the IRS's problems with the
plans were that the "springing cash" structure disqualified them from
being 412(i) plans and that the premiums, which dwarfed any payout to a
beneficiary, violated incidental death benefit rules.
Under §6707A of the Internal Revenue Code,
once the IRS flags something as an abusive tax shelter, or "listed
transaction," penalties are imposed per year for each failure to disclose
it. Another allegation is that businesses weren't told that they had to file
Form 8886, which discloses a listed transaction.
According to Lance Wallach of Plainview,
N.Y. (516-938-5007), who testifies as an expert in cases involving the plans,
the vast majority of accountants either did not file the forms for their
clients or did not fill them out correctly.
Because the IRS did not begin to focus
audits on these types of plans until some years after they became listed
transactions, the penalties have already stacked up by the time of the audits.
Another reason plaintiffs are going to
court is that there are few alternatives - the penalties are not appealable and
must be paid before filing an administrative claim for a refund.
The suits allege misrepresentation, fraud
and other consumer claims. "In street language, they lied," said
Peter Losavio, a plaintiffs' attorney in Baton Rouge, La., who is investigating
several cases. So far they have had mixed results. Losavio said that the
strength of an individual case would depend on the disclosures made and what
the sellers knew or should have known about the risks.
In 2004, the IRS issued notices and
revenue rulings indicating that the plans were listed transactions. But
plaintiffs' lawyers allege that there were earlier signs that the plans ran
afoul of the tax laws, evidenced by the fact that the IRS is auditing plans
that existed before 2004.
"Insurance companies were aware this
was dancing a tightrope," said William Noll, a tax attorney in Malvern,
Pa. "These plans were being scrutinized by the IRS at the same time they
were being promoted, but there wasn't any disclosure of the scrutiny to unwitting
customers."
A defense attorney, who represents
benefits professionals in pending lawsuits, said the main defense is that the
plans complied with the regulations at the time and that "nobody can
predict the future."
An employee benefits attorney who has
settled several cases against insurance companies, said that although the lost
tax benefit is not recoverable, other damages include the hefty commissions -
which in one of his cases amounted to $860,000 the first year - as well as the
costs of handling the audit and filing amended tax returns.
Defying the individualized approach an
attorney filed a class action in federal court against four insurance companies
claiming that they were aware that since the 1980s the IRS had been calling the
policies potentially abusive and that in 2002 the IRS gave lectures calling the
plans not just abusive but "criminal." A judge dismissed the case
against one of the insurers that sold 412(i) plans.
The court said that the plaintiffs failed
to show the statements made by the insurance companies were fraudulent at the
time they were made, because IRS statements prior to the revenue rulings
indicated that the agency may or may not take the position that the plans were
abusive. The attorney, whose suit also names law firm for its opinion letters
approving the plans, will appeal the dismissal to the 5th Circuit.
In a case that survived a similar motion
to dismiss, a small business owner is suing Hartford Insurance to recover a
"seven-figure" sum in penalties and fees paid to the IRS. A trial is
expected in August.
Last July, in response to a letter from members of Congress, the
IRS put a moratorium on collection of §6707A penalties, but only in cases where
the tax benefits were less than $100,000 per year for individuals and $200,000
for entities. That moratorium was recently extended until March 1, 2010.
But tax experts say the audits and penalties continue.
"There's a bit of a disconnect between what members of Congress thought
they meant by suspending collection and what is happening in practice. Clients
are still getting bills and threats of liens," Wallach said.
"Thousands of business owners are being hit with
million-dollar-plus fines. ... The audits are continuing and escalating. I just
got four calls today," he said. A bill has been introduced in Congress to
make the penalties less draconian, but nobody is expecting a magic bullet.
"From what we know, Congress is looking to make the penalties
more proportionate to the tax benefit received instead of a fixed amount."
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