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RPT: captive insurance IRS will audit YOU | LinkedIn
RPT: captive insurance IRS will audit YOU | LinkedIn: captive insurance IRS will audit YOU | LinkedIn
Friday, May 17, 2024
Friday, May 3, 2024
419 Plans Attacked by IRS - HG.org
419 Plans Attacked by IRS - HG.org: Insurance agents and costs attacked. - Enrolled Agents Journal March*April - For years promoters of life insurance companies and agents have tried to find ways of claiming that the premiums paid by bu
Internal Revenue Service
On
February 3, 2015, the Internal Revenue Service issued IR
2015-19, which added certain micro captive insurance companies to the IRS
“Dirty Dozen” list. The IRS publishes the Dirty Dozen list to inform the public
on what the Service will be focusing on and to warn tax return preparers about
these same areas.
While
acknowledging that these micro captive insurance companies may be legitimate,
the IRS then states that many of these companies are being created and operated
for tax versus business reasons. As we represent a wide array of taxpayers in
the captive insurance area, let’s take a moment to outline what the IRS is
looking at and what we know about the large number of examinations now underway.
Help! My Captive Insurance Company is Under IRS Audit.
If you are a taxpayer who has come under audit by the IRS
with respect to a captive insurance company, here are some things you should
know.
- Type
of Audit. For this purpose, we can divide the IRS audits into two types.
The first is a random audit on an individual or business, and the second
is a targeted audit. A random audit normally involves a local IRS Agent
and considers on some level the totality of a return filed. In a targeted
audit, the IRS obtained a customer list from the captive Promoter and is
auditing you because you are one of the customers. In a random audit, the
Agent has a checklist to review various items of your return and may spend
little or no time scrutinizing the captive. In a targeted audit, the Agent
is normally well trained in the captive area. Further, in a targeted
audit, the Agent may already have been directed on an IRS position for all
of the captives that relate to that Promoter. Accordingly, the method of
dealing with the Agent is very different in random audits than in targeted
audits.
- Your
Representation. You need to be represented in an IRS audit. The very first
thing you should do upon receiving notification of an audit is to engage
tax counsel. You should not speak to the IRS, answer questions or
participate in an interview without tax counsel.
- Choosing
Tax Counsel. There is no right or wrong choice, but the options normally
include the following:
- Local
CPA. The local CPA is often a good choice because he or she knows your
business and circumstances best. Hopefully, they also were very much
involved in your decision to create a captive and can address questions
with personal knowledge regarding the intent of the captive. The downside
is that some CPAs do not have a lot of experience with IRS audits, and
especially with targeted audits of captives. The CPA will normally be
very frank in their assessment if they believe they are in over their
head. We recommend that even in such cases, that the CPA stay on the
power of attorney and work with other hired counsel.
- Promoter’s
Counsel. Often, the Promoter will provide or refer Counsel to represent
you in audit. The benefits of this are that the Promoter’s Counsel will
most likely be extremely knowledgeable about captives in general and have
inside knowledge of the IRS position with respect to the Promoter’s
captive. Also, the Promoter’s Counsel is sometimes paid by the Promoter.
The down side is that the Promoter’s Counsel may be conflicted and
provide a conflicts waiver for you to sign prior to an engagement.
Basically, the issue is whether the Promoter is representing your
interests or the interests of the Counsel. You may feel that those
interests are the same, and sometimes they are, but sometimes they are
not.
- Outside
IRS Counsel. We are often called upon to represent clients under audit
and have represented more than 500 taxpayers in Promoter transactions in
the last 8 years. We often work with the local CPAs, but also will coordinate
efforts with the Promoter’s Counsel.
- Internal
Audit. It is important at the very outset to review the issues involving
the formation of the Captive and consider whether there are any red flags
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Using Captive Insurance Companies for Savings
Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up their own insurance companies to provide coverage when they think that outside insurers are charging too much.
Read the rest here
Read the rest here
412i Plans | IRS Resoulution Services
412i Plans | IRS Resoulution Services: IRS Resoulution Services
Abusive Tax Shelters Again on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season
WASHINGTON — The Internal Revenue Service today said using
abusive tax shelters and structures to avoid paying taxes continues to be a
problem and remains on its annual list of tax scams known as the “Dirty Dozen”
for the 2015 filing season.
"The IRS is committed to stopping complex tax avoidance
schemes and the people who create and sell them," said IRS Commissioner
John Koskinen. "The vast majority of taxpayers pay their fair share, and
we are warning everyone to watch out for people peddling tax shelters that
sound too good to be true.”
Compiled annually, the “Dirty Dozen” lists a variety of
common scams that taxpayers may encounter anytime but many of these schemes
peak during filing season as people prepare their returns or hire people to
help with their taxes.
Illegal scams can lead to significant penalties and interest
and possible criminal prosecution. IRS Criminal Investigation works closely
with the Department of Justice (DOJ) to shutdown scams and prosecute the
criminals behind them.
Abusive Tax Structures
Abusive tax schemes have evolved from simple structuring of
abusive domestic and foreign trust arrangements into sophisticated strategies
that take advantage of the financial secrecy laws of some foreign jurisdictions
and the availability of credit/debit cards issued from offshore financial
institutions.
IRS Criminal Investigation (CI) has developed a nationally
coordinated program to combat these abusive tax schemes. CI's primary focus is
on the identification and investigation of the tax scheme promoters as well as
those who play a substantial or integral role in facilitating, aiding, assisting,
or furthering the abusive tax scheme, such as accountants or lawyers. Just as
important is the investigation of investors who knowingly participate in
abusive tax schemes.
What is an abusive scheme? The Abusive Tax Schemes program
encompasses violations of the Internal Revenue Code (IRC) and related statutes
where multiple flow-through entities are used as an integral part of the
taxpayer's scheme to evade taxes. These schemes are characterized by the
use of Limited Liability Companies (LLCs), Limited Liability Partnerships
(LLPs), International Business Companies (IBCs), foreign financial accounts,
offshore credit/debit cards and other similar instruments. The schemes are
usually complex involving multi-layer transactions for the purpose of concealing
the true nature and ownership of the taxable income and/or assets.
Whether something is “too good to be true” is important to
consider before buying into any arrangements that promise to “eliminate” or
“substantially reduce” your tax liability. If an arrangement uses
unnecessary steps or a form that does not match its substance, then that
arrangement is an abusive scheme. Another thing to remember is that the
promoters of abusive tax schemes often employ financial instruments in their
schemes; however, the instruments are used for improper purposes including the
facilitation of tax evasion.
The IRS encourages taxpayers to report unlawful tax evasion.Find out howto report suspected tax fraud activity.
Misuse of Trusts
Trusts also commonly show up in abusive tax structures. They
are highlighted here because unscrupulous promoters continue to urge taxpayers
to transfer large amounts of assets into trusts. These assets include not only
cash and investments, but also successful on-going businesses. There are
legitimate uses of trusts in tax and estate planning, but the IRS commonly sees
highly questionable transactions. These transactions promise reduced taxable
income, inflated deductions for personal expenses, reduced (even to zero)
self-employment taxes, and reduced estate or gift transfer taxes.
These transactions commonly arise when taxpayers are
transferring wealth from one generation to another. Questionable trusts rarely
deliver the tax benefits promised and are used primarily as a means of avoiding
income tax liability and hiding assets from creditors, including the IRS.
IRS personnel continue to see an increase in the improper
use of private annuity trusts and foreign trusts to shift income and deduct
personal expenses, as well as to avoid estate transfer taxes. As with other
arrangements, taxpayers should seek the advice of a trusted professional before
entering a trust arrangement.
Captive Insurance
Another abuse involving a legitimate tax structure involves
certain small or “micro” captive insurance companies. Tax law allows businesses
to create “captive” insurance companies to enable those businesses to protect
against certain risks. The insured claims deductions under the tax code for
premiums paid for the insurance policies while the premiums end up with the
captive insurance company owned by same owners of the insured or family
members.
The captive insurance company, in turn, can elect under a
separate section of the tax code to be taxed only on the investment income from
the pool of premiums, excluding taxable income of up to $1.2 million per year
in net written premiums.
In the abusive structure, unscrupulous promoters persuade
closely held entities to participate in this scheme by assisting entities to
create captive insurance companies onshore or offshore, drafting organizational
documents and preparing initial filings to state insurance authorities and the
IRS. The promoters assist with creating and “selling” to the entities often
times poorly drafted “insurance” binders and policies to cover ordinary
business risks or esoteric, implausible risks for exorbitant “premiums,” while
maintaining their economical commercial coverage with traditional
insurers.
Total amounts of annual premiums often equal the amount of
deductions business entities need to reduce income for the year; or, for a
wealthy entity, total premiums amount to $1.2 million annually to take full
advantage of the Code provision. Underwriting and actuarial substantiation
for the insurance premiums paid are either missing or insufficient. The
promoters manage the entities’ captive insurance companies year after year for
hefty fees, assisting taxpayers unsophisticated in insurance to continue the
charade
Tuesday, April 30, 2024
How to Beat the IRS: Using Captive Insurance Companies for Savings
How to Beat the IRS: Using Captive Insurance Companies for Savings: Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: sett...
Lance Wallach Life Insurance: Captive Insurance Buyer Beware
Is a captive insurance cell the way to go? - Accounting Today - Captive Insurance: Achieve large tax and cost reductions by renting a “CAPTIVE”. Most accountants and small business owners are unfamiliar with a great way to reduce taxes and expenses. By either creating or sharing “a captive insurance company”, substantial tax and cost savings will benefit the small business owner.
To read the entire article, click here
To read the entire article, click here
Probs IRS: IRS Audits 419, 412i, Captive Insurance Plans With...
Probs IRS: IRS Audits 419, 412i, Captive Insurance Plans With...: IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams
IRS: Disclose Offshore Accounts or Go to Jail
IRS: Disclose Offshore Accounts or Go to Jail
Brian
That's pretty much the headline from a CNBC article on Friday. And it's true.In 2009, 15,000 Americans came forward and admitted having foreign bank accounts. Unfortunately, Uncle Sam estimates there are some 500,000 more people hiding money offshore. Opening a bank account in another country isn't illegal. There are a whole host of reasons why people may wish to send money offshore. It only becomes illegal when you send money to a foreign country in the hopes of cheating Uncle Sam.
U.S. law makes it a felony if you fail to declare the income from foreign investments on your U.S. tax return and makes it illegal to not disclose the existence of the foreign account.
So what is a person to do? Taxpayers can do nothing and hope they don't lose the "audit lottery" (there are no winners with the IRS). Or taxpayers can come into compliance, report the account and pay the government ¼ of the highest dollar amount that was in the account. That's right, if you had an account with $200,000 in it, get out the checkbook and write a check to the IRS for $50,000.
Taxpayers wanting to take advantage of the current amnesty program (called the Offshore Voluntary Disclosure Initiative) must move quickly, however. Unlike the 2009 program, which simply said you had to apply be the deadline, the current amnesty requires that all missing forms ("FBAR's"), amended returns and payment must be made by the deadline. There is a great deal of paperwork involved with the new program, waiting until the last minute is a recipe for disaster.
Those that don't comply face prison and loss of 50% of their highest account value.
So what is the risk of getting caught? We think it is quite high.
Transparency within the international banking community is at an all time high. And the developed countries are exchanging information. That means if Germany obtains information about accounts in a Bermuda bank it will likely share that information with other countries.
The U.S. has been issuing "John Doe" subpoenas to foreign banks fishing for the names of American account holders. Countries like Germany have been bribing foreign bank officials to simply steal the information and turn it over.
Still not convinced? The IRS paid its first award under the new whistleblower program - $4.5 million to an accountant who reported his employer! If anyone, anywhere knows you have a foreign account; they may report you and keep a large percentage of what you pay.
The world suddenly got much smaller.
This is interesting article but I do not believe everything in it is correct. I have received numerous phone calls from participants in these plans and the IRS is auditing. For the most accurate information contact: Lance Wallach at lancewallach.com or call 516-935-7346
How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org
How Hartford Life and Other Insurance Companies Tricked their Agents and Got People in Trouble with the IRS - HG.org
Agents from Hartford and other insurance companies were shown ways to sell large life insurance policies. This “Welfare Benefit Trust 419 plan or 412i plan should be shown to their profitable small business owners as a cure for paying too much taxes.
A Welfare Benefit Trust 419 plan essentially works like this:
• The business provides a fringe benefit for their employees, such as health insurance and life insurance.
• The benefit is established in the name of a trust and funded with a cash value life insurance policy
• Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company,and
• The owners of the company can withdraw the cash value from the policy in later years tax-free.
• The business provides a fringe benefit for their employees, such as health insurance and life insurance.
• The benefit is established in the name of a trust and funded with a cash value life insurance policy
• Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company,and
• The owners of the company can withdraw the cash value from the policy in later years tax-free.
Read more by clicking the link above!
Tuesday, March 12, 2024
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