Lance Wallach
Volume 22
Number 2 Spring
Here it is. Here is proof of my predictions. Perhaps you
didn’t believe me when I told you the IRS was coming after what it has deemed
“abusive transactions,” but here it is, right from the IRS’s own job posting
website: “If you or your clients were involved with a 419, and you haven’t yet
approached an expert for help, you had better do it now, before the notices
start piling up on your desk.” Specific forms need to be properly filed under
IRC Section 6707A to avoid large IRS fines. These fines are in addition to IRS
audits and disallowances of tax deductions. With this tactic, the IRS gets your
client twice. First, they get audited and their tax deduction gets disallowed
with possible interest and penalties. Then the IRS comes after your client
again for not properly filing forms under Internal Revenue Code 6707A. The
resulting fines for not properly filing are large, but they can usually be avoided
by properly filing the required forms. Here is a small portion of the job
posting I referred to above:
Job Title: Internal Revenue Agent (Abusive Transactions
Group) Agency: Internal Revenue Service Open Period: Monday, October 18, 2010,
to Monday, November 1, 2010Sub Agency: Internal Revenue Service Job
Announcement Number: 11PH1-SBB0058-0512-12/13
Who may be considered:
• IRS employees on career or career conditional appointments
in the competitive service;• Treasury Office of chief counsel employees on
career or career conditional appointments or with prior competitive status;
and• IRS employees on term appointments with potential conversion to a career
or career conditional appointment in the same line of work.
According to the job description, the agents of the Abusive
Transactions Group will be conducting examinations of individuals, sole
proprietor-ships, small corporations, partner-ships and fiduciaries. They will
be examining tax returns and will “determine the correct tax liability, and
identify situations with potential for understated taxes.” These agents will
work in the Small Business/Self-Employed Business Division (SB/SE), which
conducts examinations for about 7 million small businesses, and upwards of 33
million self-employed and supple-mental income taxpayers. This group
specifically goes after taxpayers who generally have higher incomes than most
taxpayers, need to file more tax forms and rely more on paid tax preparers.
Their examinations can contain “special audit features or anticipated
accounting, tax law or investigative issues,” and look to make sure that, for
example, specialty returns are filed properly. The fines are severe. Under IRC
6707A, fines were up to $200,000 annually for not properly disclosing
participation in a listed transaction. There was a moratorium on those fines
until June 2010, pending new legislation to reduce them, but the new law, which
was passed in September, virtually guarantees you will be fined. The fines had
been $200,000 per year on the corporate level and $100,000 per year on the
personal level. You were fined even if you made zero contributions for the
year. All you had to do was to be in the plan and fail to properly disclose
your participation. You can possibly still help your clients avoid all this by
properly filing Form 8886 immediately with the IRS. Time is especially of the
essence now, as you must file before they assess the penalty. For months, the
IRS held off on actually collecting from people that they assessed because they
did not know what Congress was going to do. But now they do know, so they are
going to move aggressively to collect from people that were already assessed.
There is no reason not to now, which is especially true because the new
legislation still does not provide for a right to appeal or judicial review.
The IRS is still judge, jury and executioner. Its word is absolute as far as
determining what is a listed transaction, or now, a reportable transaction,
participation that now triggers the same penalty. A reportable transaction is
defined as any transaction with the potential for tax avoidance, a much broader
definition than that for a listed transaction. So you have to file Form 8886
fast, but you also have to file it properly. The IRS treats forms that are
incorrectly filed as if they were never filed. You can be fined for filing
incorrectly, or for not filing at all. The statute of limitations will not
begin unless you properly file. This means that the IRS can come back to get
you any time in the future unless you file properly. If you don’t want these
new IRS agents, or any other IRS agents for that matter, to be earning their
paychecks by coming after your clients and you as a material advisor, make sure
you have done all you can to ensure that you have filed properly by reaching
out for expert help today.
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
Many small business owners or doctors have lost money in a 419 plan. The IRS considers most of these plans to be abusive tax shelters. Unfortunately, quite an industry developed over the last decade selling these plans to unwary consumers. The promoters claim that the plan is a legitimate way to invest money without paying taxes. These plans were often marketed through seminars and sometimes by insurance agents and accountants.
ReplyDeleteThe “lucky” participants simply made a lousy investment in unneeded insurance. The rest, however, either received a huge tax bill from the IRS or found they were unable to get back their money when needed. The really unlucky both lost their money and had to pay the IRS. A recent case from the United States Tax Court once again points out the perils in 419 welfare benefit plans. (If you have invested in a similar tax shelter such as a Chapter 79 captive insurance company, 412 plan or shark finned CLATs, keep reading. The same advice probably pertains to you as well.)