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    Big Trouble Ahead For Many 419 Welfare Benefit Plan
    and 412i Retirement Plan Participants

    Aug 25, 2010
    By Lance Wallach

    Business owners and professionals who have adopted 419 welfare benefit plan arrangements are
    in serious trouble. The IRS has attacked these arrangements as "listed transactions." Business
    owners who engage in a "listed transaction" must report such transactions on IRS Form 8886
    every year that they are participating in the transaction, and you are participating even in years
    when you do not make any contribution. Internal Revenue Code 6707A imposes severe penalties
    ($200,000 annually for a business and $100,000 per year for an individual) for failure to file
    Form 8886 with respect to a listed transaction. Tax Court, according to both the IRS Appeals
    Office and its own decisions, does not have jurisdiction to abate or lower any penalties imposed
    by the IRS. Complaints caused Congress to impose a moratorium on collection of Section
    6707A penalties.  On June 1, 2010, the moratorium ended, and the IRS immediately began
    sending out notices warning of possible imposition of 6707A penalties.  When you get this notice
    it should be taken very seriously.

    Accountants were required to properly prepare and file Form 8918 (if they signed and/or
    prepare  tax returns and got paid). The penalty for accountants for not properly filing the forms
    is $100,000, or $200,000 if they are incorporated.

    Businesses that were in some 419 welfare benefit plans or some 412i retirement as well as some
    Captive Insurance and Section 79 Plans, were supposed to properly file under IRC Section
    6707A each year with the IRS. Either the taxpayer or the accountant was responsible, though
    the ultimate, primary obligation falls on the taxpayer. The IRS has just begun sending the notices
    referred to above to participants in many of these plans. This is in addition to any IRS audit you
    might have had or currently may be having. The large 6707A fine has nothing to do with any
    other IRS audit. The 6707A fine is for not having properly filed under 6707A with your returns.
    You are required to file each year with your tax return.

    Not only were you required to file with your Federal return, but many states also require
    protective filings. Some participants in these types of plans have already received notices from
    the IRS. You must act immediately if you wish to avoid possible huge IRS penalties and interest
    that could put you out of business for good.

    THE STATUTE OF LIMITATIONS IS NOT RUNNING. This means that the IRS can fine you
    at any time in the future for anything regarding past or present participation in an abusive 419
    welfare benefit plan or an abusive 412i retirement plan. There is still time to avoid the IRS
    penalties and interest. You need to take action immediately and find out right away if the plan
    you are participating in is abusive by consulting with a professional and experienced 419/412i
    plan expert.

    Most accountants do not know how to properly prepare the appropriate forms. Accountants or
    other advisors will probably be fined as material advisors. This means that you may be subject to
    a large fine. Once you get the large fine, the IRS claims it is not subject to an appeal.

    You should have filed protectively for every year your entity participated in the plan. Once again,
    for every year after 2003, the penalty for not properly filing is $200,000 a year for corporations
    and $100,000 a year for individuals. For example, it is possible an employer in the plan since
    2004 could be subject to over one million dollars in penalties solely as a result of the failure to
    file. For all years in the plan, the Statute of Limitations will not begin to run until after the form
    is properly filed. In addition, certain individual plan participants should also file for every year of
    plan participation. Once again, none of this has anything to do with any other audit that you may
    currently be involved in or may previously have experienced.

    It is abundantly clear that taxpayers who receive notices from the IRS regarding Section 6707A
    penalties should take these letters extremely seriously. These notices do not lend themselves to
    "do-it-yourself eye surgery".

    Read more: ArticlesBase Under Creative Commons License: Attribution

    About the Author:

    Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA
    faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate
    planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He
    speaks at more than ten conventions annually, writes for over fifty publications, is quoted
    regularly in the press and has been featured on television and radio financial talk shows including
    NBC, National Pubic Radio's All Things Considered, and others. Lance has written numerous
    books including Protecting Clients from Fraud, Incompetence, and Scams published by John
    Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift
    Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice
    Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and
    has never lost a case. Contact him at 516.938.5007,, or visit

Big Trouble Ahead For Many 419 Welfare
Benefit Plan and 412i Retirement Plan