Similarities and Differences Between IRC Section 419A(f)(6) and IRC Section 419(e) Plans CPA’s Guide to Life Insurance

Author/Moderator: Lance Wallach, CLU, CHFC, CIMC

Below is an excerpt from one of Lance Wallach’s new books.



Similarities and Differences Between IRC Section 419A(f)(6) and IRC Section 419(e) Plans


                        One popular type of listed transaction is the so-called “welfare benefit plan,” which once relied on IRC §419A(f)(6) for its authority to claim tax deductions, but now more commonly relies on IRC §419(e).  The IRC §419A(f)(6) plans used to claim that the section completely exempted business owners from all limitations on how much tax could be deducted.  In other words, it was claimed, tax deductions were unlimited.  These plans featured large amounts of life insurance and accompanying large com­missions, and were thus aggressively pushed by insurance agents, financial planners, and sometimes even accountants and attorneys.  Not to mention the insurance companies themselves, who put millions of dollars in premiums on the books and, when confronted with questions about the outlandish tax claims made in marketing these plans, claimed to be only selling product, not giving opinions on tax questions.

Reportable Transactions .com: 419 Plan, 412i Plan

Reportable Transactions .com: 419 Plan, 412i Plan, Welfare benefit plan assistan...: 419 Plan, 412i Plan, Welfare benefit plan assistance, audits & Abusive tax shelters

EP Abusive Tax Transactions - Certain Trust Arrangements Seeking to Qualify for Exemption from Section 419



Notice 95-34 discusses tax problems raised by certain trust arrangements seeking to qualify for exemption from IRC section 419. This transaction involves the claiming of deductions under IRC sections 419 and 419A for contributions to multiple employer welfare benefit funds. In general, an employer may deduct contributions to a welfare benefit fund when paid, but only if the contributions qualify as ordinary and necessary business expenses of the employer and only to the extent allowable under IRC sections 419 and 419A.  There are strict limits on the amount of tax-deductible pre-funding permitted for contributions to a welfare benefit fund.
IRC section 419A(f)(6) provides an exemption from IRC sections 419 and 419A for a welfare benefit fund that is part of a 10 or more employer plan. In general, for this exemption to apply, an employer normally cannot contribute more than 10 percent of the total contributions contributed under the plan by all employers, and the plan must not be experience rated with respect to individual employers.
Promoters have offered trust arrangements that are used to provide life insurance, disability, and severance pay benefits. The promoters enroll at least 10 employers in their multiple employer trusts and claim that all employer contributions are tax deductible when paid, relying on the 10-or-more-employer exemption from the limitations under IRC sections 419 and 419A. Often the trusts maintain separate accounting of the assets attributable to each subscribing employer’s contributions.
Notice 95-34 puts taxpayers on notice that deductions for contributions to these arrangements are disallowable for any one of several reasons (e.g., the arrangements may provide deferred compensation, the arrangements may be separate plans for each employer, the arrangements may be experience rated in form or operation, or the contributions may be nondeductible prepaid expenses).
On July 17, 2003, final regulations (T.D. 9079) relating to whether a welfare benefit fund is part of a 10 or more employer plan (as defined in section 419A(f)(6) of the Internal Revenue Code) were published in the Federal Register (68 FR 42254).




In addition, in a case decided by the Third Circuit Court of Appeals, the contributions to the plan were taxable to the owners of the corporate employers as constructive dividends (Neonatology Associates, P.A., Et Al. v. Commissioner, 299 F.3rd 221 - 3rd Cir. 2002).

Captive Insurance - Buyers Beware!

Captive Insurance - Buyers Beware!

Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach

Big Trouble Ahead For 412i and 419 Plan Participants - Lance Wallach

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.
Read more by clicking the link above!

TAXSHELTERAUDITS.COM

TAXSHELTERAUDITS.COM

Investment News - Lance Wallach - 412i and 419 plan litigatation

Investment News - Lance Wallach - 412i and 419 plan litigatation