|As published in Producer's Web
accountants and attorneys. I speak at numerous conventions, for both business owners and
accountants. And after I speak, I am always approached by many people who have questions
about tax reduction plans that they have heard about. Below are the most common.
419 Tax Reduction Insurance Plans
These come in various versions, and most of them have or will get the participant audited and the
salesman sued. They purportedly allow the business owner to make a large tax-deductible been
disallowing most versions of these plans for years, yet they continue to be sold. After everyone
gets into trouble and the insurance agents get sued, the promoters of the abusive versions
sometimes change the name of their company and call the plan something else. The insurance
companies whose policies are sold are legitimate companies. What usually is not legitimate is the
way that most of the plans are operated. There can also be a $200,000 IRS fine facing the
insurance agent who sold the plan if Form 8918 has not been properly filed. I've reviewed
hundreds of these forms for agents and have yet to see one that was filled out correctly.
When the IRS audits a participant in one of these plans, the tax deductions are lost. There is also
the interest and large penalties to consider. The business owner can also be facing a $200,000-a-
year fine if he did not properly file Form 8886. Most of these forms have been filled out
improperly. In my talks with the IRS, I was told that the IRS considers not filling out Form 8886
properly almost the same as not filing at all.
412(i) Retirement Plans
The IRS has been auditing participants in these types of retirement plans. While there is generally
nothing wrong with many of the newer plans, the IRS considered most of the older ones abusive
plans. Forms 8918 and 8886 are also required for abusive 412(i) plans.
I have been an expert witness in a lot of these 419 and 412(i) lawsuits and my side has not yet lost
one of them. If you sold one or more of these plans, get someone who really knows what they are
doing to help you immediately. Many advisors will take your money and claim to be able to help
you. Make sure they have experience helping agents that have sold these types of plans. Don't let
them learn on the job with your career and money at stake.
Do not wait for IRS to come and get you, or for your client to sue you. Time is of the essence.
Most insurance professionals need help to correct their improperly completed Form 8918 or to fill
it out properly in the first place. If you have not previously filled out the form then it is late, and
therefore you should immediately seek assistance. There are plenty of legitimate tax reduction
insurance plans out there. Just make sure that you know the history of the people with whom you
Remember, if something looks too good to be true, it usually is. Be careful.
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,
firstname.lastname@example.org, or visit www.taxlibrary.us.
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.