captive insurance and the IRS, 1766 views, 45 likes Published on July 15, 2016 LikedUnlikecaptive insurance and the IRS, 1766 views, 45
A recent concern is the integration of small captives with life insurance policies. Small captives under Section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.
The IRS is aware that several large insurance companies are promoting their life insurance policies as investments within small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.
Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. Some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.
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 Public 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 andFederal Estate and Gift Taxation, as well as AICPA best-selling books, includingAvoiding 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, wallachinc@gmail.com or visit www.taxadvisorexperts.org or 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.
419.Tax 419.Tax Search SKIP TO CONTENT WHAT IS A 419 PLAN? ABUSIVE TAX SHELTERS EXPERT WITNESS IN 419 PLAN AND OTHER CIVIL LITIGATION OUR SERVICES LANCE WALLACH ABOUT US CONTACT US WHAT IS A 419 PLAN? Section 419 of the Internal Revenue Code allows employers to take deductions—within certain limits—for contributions made to a trust to fund welfare benefits for employees. In order to be considered a 419 plan, the plan must offer “welfare” benefits to employees and it must be a “funded” plan. Welfare benefits are a general designation for any employer provided benefit which is not a pension or other retirement benefit. Examples include benefits paid in the event of sickness, accident, disability, death, or unemployment. Funded plans are arrangements where the employer sets aside assets specifically dedicated to paying for benefits. In order for a plan to be funded, the assets must be placed in a trust, escrow, or similar arrangement, where: (i) the assets can only be used for the benefit of employees or beneficiaries, and (ii) the assets cannot be returned to the employer.
Deductions for Funding a 419 Plan If an arrangement meets the requirements set out in § 419, then an employer may take a deduction for plan contributions up to an amount equal to current year costs of the plan, plus an amount reasonably necessary to fund claims incurred but as yet unpaid, plus, in the case of post retirement benefits, an additional amount limited to what would be required actually to fund the promised benefit on a level basis over the “working lives” of participating employees.
Taxation of Assets During Funding Period If the plan assets are set aside in a voluntary employee benefits association (“VEBA”), then, in general, any income earned on the assets while in the VEBA would be tax exempt. If assets are set aside in a trust, then any income earned by the assets will be taxed to the trust.
Taxation of Benefits When Paid Welfare benefits are taxed upon receipt. Once benefits are paid out, the employee must recognize the benefit as ordinary income.
Non-Discrimination for Some 419 Plans
Benefits under a 419 plan may be subject to rules of non-discrimination. While some funded welfare benefits may be offered on a selective (discriminatory) basis, if a 419 plan offers post retirement benefits or is funded with a VEBA, the benefits must be made generally available and cannot discriminate in favor of highly compensated employees.
some folks sell insurance based programs with tax benefits, such as 419 Plans and 412(i) Plans, or promote premium financing or STOLI programs to unsuspecting consumers leaving the consumer to be eaten alive, either by the IRS or by a turn in the economy, when all goes wrong. But the opposite is also true. Some 419 Plans and 412(i) Plan are very well designed and flawlessly implemented but the IRS just shoots first and aims second. Some legitimate premium financing might miscue. Building off of David’s knowledge of life insurance and the many ways life insurance has been and can be used in tax and wealth planning, lawyers for both plaintiffs and defendants throughout the U.S. seek David’s services as a consultant and expert witness in cases between consumers and those who sold them these programs that develop after the IRS, right or wrong, initiates an audit or the investment goes under water. In looking for an expert witness examine credentials: if he or she is not a lawyer or accountant expert in this area they are not expert enough to be an expert witness no matter how good they may sound.
References from law firms across the country are available upon request. See also: 419 Plan Tax Controversies. Picture Some of the Section 419 Welfare Benefit Plans: NOVA Benefit Plans (run or had been run by Dan Carpenter, Wayne Bursey, Guy Neumann, Kathy Kehoe, Joe Castagno and others), including: the SADI Plan, the Grist Mill Plan, Life One, among others Benistar Plans (also run by Dan Carpenter, Wayne Bursey, Guy Neumann, Kathy Kehoe, Joe Castagno and others) Greater Metropolitan Sterling Benefit Plan (run by Ronald Snyder) Millenium Plans CJA & Associates (run by Raymond Ankner Sea Nine VEBA Compass Welfare Benefit Plan Sunderlage Resource Group/SRG International (run by Tracy Sunderlage, among others) Restricted Property Trust (RPT) (run by Ken Crabb)
captive insurance and the IRS, 1766 views, 45 likes
ReplyDeletePublished on July 15, 2016
LikedUnlikecaptive insurance and the IRS, 1766 views, 45
A recent concern is the integration of small captives with life insurance policies. Small captives under Section 831(b) have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the efficacy of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.
The IRS is aware that several large insurance companies are promoting their life insurance policies as investments within small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.
Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. Some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.
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 Public 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 andFederal Estate and Gift Taxation, as well as AICPA best-selling books, includingAvoiding 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, wallachinc@gmail.com or visit www.taxadvisorexperts.org or 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.
419.Tax
ReplyDelete419.Tax
Search SKIP TO CONTENT
WHAT IS A 419 PLAN? ABUSIVE TAX SHELTERS EXPERT WITNESS IN 419 PLAN AND OTHER CIVIL LITIGATION OUR SERVICES LANCE WALLACH ABOUT US CONTACT US
WHAT IS A 419 PLAN?
Section 419 of the Internal Revenue Code allows employers to take deductions—within certain limits—for contributions made to a trust to fund welfare benefits for employees. In order to be considered a 419 plan, the plan must offer “welfare” benefits to employees and it must be a “funded” plan.
Welfare benefits are a general designation for any employer provided benefit which is not a pension or other retirement benefit. Examples include benefits paid in the event of sickness, accident, disability, death, or unemployment.
Funded plans are arrangements where the employer sets aside assets specifically dedicated to paying for benefits. In order for a plan to be funded, the assets must be placed in a trust, escrow,
or similar arrangement, where: (i) the assets can only be used for the benefit of employees or beneficiaries, and (ii) the assets cannot be returned to the employer.
Deductions for Funding a 419 Plan
If an arrangement meets the requirements set out in § 419, then an employer may take a deduction for plan contributions up to an amount equal to current year costs of the plan, plus an amount reasonably necessary to fund claims incurred but as yet unpaid, plus, in the case of post retirement benefits, an additional amount limited to what would be required actually to fund the promised benefit on a level basis over the “working lives” of participating employees.
Taxation of Assets During Funding Period
If the plan assets are set aside in a voluntary employee benefits association (“VEBA”), then, in general, any income earned on the assets while in the VEBA would be tax exempt. If assets are set aside in a trust, then any income earned by the assets will be taxed to the trust.
Taxation of Benefits When Paid
Welfare benefits are taxed upon receipt. Once benefits are paid out, the employee must recognize the benefit as ordinary income.
Non-Discrimination for Some 419 Plans
Benefits under a 419 plan may be subject to rules of non-discrimination. While some funded welfare benefits may be offered on a selective (discriminatory) basis, if a 419 plan offers post retirement benefits or is funded with a VEBA, the benefits must be made generally available and cannot discriminate in favor of highly compensated employees.
SHARE THIS:
ReplyDeleteYour name:
Your email address:
Your phone number:
Comments:
Reset
Submit
419 , 412i , 419e , captive insurance , section 79 , international taxes , irs audits , FBAR , Offshore Tax Shelters ,
Welfare Benefit Plan , Cash value life insurance , Tax Penalties , IRS penalties , Defined benefit pension , Listed
transactions , tax avoidance , welfare benefit fund , 419af6 , abusive tax shelter , AICPA , malpractice , expert witness ,
8886 forms , reportable transactions , tax audits , Bankruptcy , abusive tax shelters , Certified public accountant ,
International revenue services , material advisor , Tax resolution services , 6707a , s corp , c corp , amnesty , Offer and
compromise , OIC , CPA , IRS
contact us
The Millennium Plan
SADI Trust
The Beta Plan - Hartford -
PAC Life
Niche - Benistar - The Grist
Mill Trust
Compass Welfare Benefit
Plan
Sea Nine VEBA - Bisys
Professional Benefits Trust
(PBT)
Advantage - Sterling - Cresp
Heritage Plan - Indianpolis
Life Penmont - and litigation
invovling other similar 412i
Retirement plans
419 Welfare Benefit plans
some folks sell insurance based programs with tax benefits, such as 419 Plans and 412(i) Plans, or promote premium financing or STOLI programs to unsuspecting consumers leaving the consumer to be eaten alive, either by the IRS or by a turn in the economy, when all goes wrong. But the opposite is also true. Some 419 Plans and 412(i) Plan are very well designed and flawlessly implemented but the IRS just shoots first and aims second. Some legitimate premium financing might miscue. Building off of David’s knowledge of life insurance and the many ways life insurance has been and can be used in tax and wealth planning, lawyers for both plaintiffs and defendants throughout the U.S. seek David’s services as a consultant and expert witness in cases between consumers and those who sold them these programs that develop after the IRS, right or wrong, initiates an audit or the investment goes under water. In looking for an expert witness examine credentials: if he or she is not a lawyer or accountant expert in this area they are not expert enough to be an expert witness no matter how good they may sound.
ReplyDeleteReferences from law firms across the country are available upon request.
See also: 419 Plan Tax Controversies.
Picture
Some of the Section 419 Welfare Benefit Plans:
NOVA Benefit Plans (run or had been run by Dan Carpenter, Wayne Bursey, Guy Neumann, Kathy Kehoe, Joe Castagno and others), including: the SADI Plan, the Grist Mill Plan, Life One, among others
Benistar Plans (also run by Dan Carpenter, Wayne Bursey, Guy Neumann, Kathy Kehoe, Joe Castagno and others)
Greater Metropolitan
Sterling Benefit Plan (run by Ronald Snyder)
Millenium Plans
CJA & Associates (run by Raymond Ankner
Sea Nine VEBA
Compass Welfare Benefit Plan
Sunderlage Resource Group/SRG International (run by Tracy Sunderlage, among others)
Restricted Property Trust (RPT) (run by Ken Crabb)