understand the mechanics and legal issues surrounding what has become known as “419 Plans,” welfare benefit plans often used by small companies and funded with life insurance. For that reason taxpayers throughout the country seek his services in dealing with the Internal Revenue Service in audits, appeals and in the Tax Court.
We can help you deal with: audits, appeals and Tax Court issues involving 419 Plan deductions and the taxation of withdrawals listed transaction issues including filing Form 8886 and fighting the section 6707A and section 6662A penalties See also: Captive Insurance Companies, 419 Plan Expert Witness and Life Insurance Trustee Risk Management. 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 or had been 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)
FINRA Allegations Without admitting or denying the findings, Crabb consented to the sanctions and to the entry of findings that he willfully failed to amend or timely amend his Form U4 to disclose federal and state tax liens totaling nearly $1. 7 million. The findings stated that the Internal Revenue Service (IRS) filed seven tax liens against Crabb, and the State of Ohio filed four tax liens against Crabb. Crabb disclosed one federal lien approximately seven years after learning of the lien's existence, one federal lien and three state liens approximately two years after learning of the liens' existence, and two federal liens approximately one year after learning of the liens' existence. For three federal liens and one state lien, totaling more than $ 1.1 million, Crabb failed to make any disclosure at all. With respect to three of the liens that he untimely disclosed, Crabb represented on his Form U4 that the liens were satisfied when they were not. The findings also stated that Crabb falsely attested on his member firm's annual compliance questionnaires that he did not have any unsatisfied judgments or liens. Resolution Acceptance, Waiver & Consent(AWC) Sanctions Civil and Administrative Penalty(ies)/Fine(s) Amount $5,000.00
Sanctions Suspension Registration Capacities Affected All Capacities Duration six months Start Date 3/2/2020 End Date 9/1/2020
Sanctions The settlement includes a finding that Crabb willfully failed to disclose a material fact on a Form U4, and that under section 3(a)(39)(f) of the Securities Exchange Act of 1934 and Article III, Section 4 of the FINRA By-Laws, this omission make him subject to a statutory disqualification with respect to association with a member. Regulator Statement Fines paid in full on September 23, 2020.
Notice 2007-83 - Abusive Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare Benefits - 2007-45 I.R.B. 1 (transactions in which certain trust arrangements claiming to be welfare benefit funds and involving cash value life insurance policies that are being promoted to and used by taxpayers to improperly claim federal income and employment tax benefits (identified as “listed transactions” on October 17, 2007)).
1 Today, the Treasury Department and the Internal Revenue Service issued guidance to shut down abusive transactions involving specially designed life insurance policies in retirement plans, section “412(i) plans.” The guidance designates certain arrangements as “listed transactions” for tax-shelter reporting purposes.
A “section 412(i) plan” is a tax-qualified retirement plan that is funded entirely by a life insurance contract or an annuity. The employer claims tax deductions for contributions that are used by the plan to pay premiums on an insurance contract covering an employee. The plan may hold the contract until the employee dies, or it may distribute or sell the contract to the employee at a specific point, such as when the employee retires.
“The guidance targets specific abuses occurring with section 412(i) plans,” stated Assistant Secretary for Tax Policy Pam Olson. “There are many legitimate section 412(i) plans, but some push the envelope, claiming tax results for employees and employers that do not reflect the underlying economics of the arrangements.”
“Again and again, we’ve uncovered abusive tax avoidance transactions that game the system to the detriment of those who play by the rules,” said IRS Commissioner Mark W. Everson. “Today’s action sends a strong signal to those taking advantage of certain insurance policies that these abusive schemes must stop.”
The guidance covers three specific issues. First, a set of new proposed regulations states that any life insurance contract transferred from an employer or a tax-qualified plan to an employee must be taxed at its full fair market value. Some firms have promoted an arrangement where an employer establishes a section 412(i) plan under which the contributions made to the plan, which are deducted by the employer, are used to purchase a specially designed life insurance contract. Generally, these special policies are made available only to highly compensated employees. The insurance contract is designed so that the cash surrender value is temporarily depressed, so that it is significantly below the premiums paid. The contract is distributed or sold to the employee for the amount of the current cash surrender value during the period the cash surrender value is depressed; however the contract is structured so that the cash surrender value increases significantly after it is transferred to the employee. Use of this springing cash value life insurance gives employers tax deductions for amounts far in excess of what the employee recognizes in income. These regulations, which will be effective for transfers made on or after today, will prevent taxpayers from using artificial devices to understate the value of the contract. A revenue procedure issued today along with the proposed regulations provides a temporary safe harbor for determining fair market value.
Second, a new revenue ruling states that an employer cannot buy excessive life insurance (i.e., insurance contracts where the death benefits exceed the death benefits provided to the employee’s beneficiaries under the terms of the plan, with the balance of the proceeds reverting to the plan as a return on investment) in order to claim large tax deductions. These arrangements generally will be listed transactions for tax-shelter reporting purposes.
Third, another new revenue ruling states that a section 412(i) plan cannot use differences in life insurance contracts to discriminate in favor of highly paid employees.
Copies of the proposed regulations, the revenue procedure, and the two revenue rulings are attached.
A syndicated conservation easement is a transaction in which a promoter brings together a group of investors, places them into a passthrough entity (such as a partnership), uses the investment funds to purchase land, and then places a conservation easement on the land that restricts the private use of the property in order to protect its conservation value. The partnership takes a charitable deduction for the reduction in value of the property that occurred when the partnership made a donation of the easement to a land trust, and then passes through that tax deduction to the investors on a Form K-1.
Who are some of the parties who may have been involved in syndicated conservation easement deals that could flag IRS audit and other investigations? Ornstein-Schuler Investments, LLC (OSI) Strategic Group / (Ricky Novak & James Freeman) Sixty West, LLC (a.k.a. 60 West) Inland Capital (Jack Fisher / Agee, Fisher, Barrett, LLC) Aprio, LLP f/k/a Habif, Arogeti & Wynne, LLP Webb Creek Management Group, LLC Evrgreen Management Group, Inc. (a.k.a. Evergreen) (Matt Campbell) EvrSource Capital (a.k.a. Eversource) (Chip Pearson) Ecovest Capital, Inc. GBX Group, LLC (formerly Global X) Eco Terra Management, LLC Effingham Managers, LLC Greencone Investments, LLC Awahili Alliance, LLC / (Jim Adams) Old Ivy Capital Partners / (Steve Bush & Dan Carbonaro) Forever Forests, LLC (Nancy Zak) Credo Financial Services, LLC Emerald Property Investors, LLC / (Kowan, Cordon & Graham) PeachCap Piedmont Private Equity Sequence Financial Specialists, LLC Large & Gilbert, Inc. Bennett Thrasher, LLC The Private Client Law Group Carney Conservation Easement Consultants, LLC Southern Conservation Group, LLC Capital Conservation Consultants, LLC
understand the mechanics and legal issues surrounding what has become known as “419 Plans,” welfare benefit plans often used by small companies and funded with life insurance. For that reason taxpayers throughout the country seek his services in dealing with the Internal Revenue Service in audits, appeals and in the Tax Court.
ReplyDeleteWe can help you deal with:
audits, appeals and Tax Court
issues involving 419 Plan deductions and the taxation of withdrawals
listed transaction issues including filing Form 8886 and fighting the section 6707A and section 6662A penalties
See also: Captive Insurance Companies, 419 Plan Expert Witness and Life Insurance Trustee Risk Management.
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 or had been 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)
DeleteFINRA
Allegations
Without admitting or denying the findings, Crabb consented to the sanctions and to the entry of findings that he willfully failed to amend or timely amend his Form U4 to disclose federal and state tax liens totaling nearly $1. 7 million. The findings stated that the Internal Revenue Service (IRS) filed seven tax liens against Crabb, and the State of Ohio filed four tax liens against Crabb. Crabb disclosed one federal lien approximately seven years after learning of the lien's existence, one federal lien and three state liens approximately two years after learning of the liens' existence, and two federal liens approximately one year after learning of the liens' existence. For three federal liens and one state lien, totaling more than $ 1.1 million, Crabb failed to make any disclosure at all. With respect to three of the liens that he untimely disclosed, Crabb represented on his Form U4 that the liens were satisfied when they were not. The findings also stated that Crabb falsely attested on his member firm's annual compliance questionnaires that he did not have any unsatisfied judgments or liens.
Resolution
Acceptance, Waiver & Consent(AWC)
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$5,000.00
Sanctions
Suspension
Registration Capacities Affected
All Capacities
Duration
six months
Start Date
3/2/2020
End Date
9/1/2020
Sanctions
The settlement includes a finding that Crabb willfully failed to disclose a material fact on a Form U4, and that under section 3(a)(39)(f) of the Securities Exchange Act of 1934 and Article III, Section 4 of the FINRA By-Laws, this omission make him subject to a statutory disqualification with respect to association with a member.
Regulator Statement
Fines paid in full on September 23, 2020.
Disciplinary Action Details
Notice 2007-83 - Abusive Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare Benefits - 2007-45 I.R.B. 1 (transactions in which certain trust arrangements claiming to be welfare benefit funds and involving cash value life insurance policies that are being promoted to and used by taxpayers to improperly claim federal income and employment tax benefits (identified as “listed transactions” on October 17, 2007)).
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ReplyDeletePublished on December 20, 2018
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Lance Wallach
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Today, the Treasury Department and the Internal Revenue Service issued guidance to shut down abusive transactions involving specially designed life insurance policies in retirement plans, section “412(i) plans.” The guidance designates certain arrangements as “listed transactions” for tax-shelter reporting purposes.
A “section 412(i) plan” is a tax-qualified retirement plan that is funded entirely by a life insurance contract or an annuity. The employer claims tax deductions for contributions that are used by the plan to pay premiums on an insurance contract covering an employee. The plan may hold the contract until the employee dies, or it may distribute or sell the contract to the employee at a specific point, such as when the employee retires.
“The guidance targets specific abuses occurring with section 412(i) plans,” stated Assistant Secretary for Tax Policy Pam Olson. “There are many legitimate section 412(i) plans, but some push the envelope, claiming tax results for employees and employers that do not reflect the underlying economics of the arrangements.”
“Again and again, we’ve uncovered abusive tax avoidance transactions that game the system to the detriment of those who play by the rules,” said IRS Commissioner Mark W. Everson. “Today’s action sends a strong signal to those taking advantage of certain insurance policies that these abusive schemes must stop.”
The guidance covers three specific issues. First, a set of new proposed regulations states that any life insurance contract transferred from an employer or a tax-qualified plan to an employee must be taxed at its full fair market value. Some firms have promoted an arrangement where an employer establishes a section 412(i) plan under which the contributions made to the plan, which are deducted by the employer, are used to purchase a specially designed life insurance contract. Generally, these special policies are made available only to highly compensated employees. The insurance contract is designed so that the cash surrender value is temporarily depressed, so that it is significantly below the premiums paid. The contract is distributed or sold to the employee for the amount of the current cash surrender value during the period the cash surrender value is depressed; however the contract is structured so that the cash surrender value increases significantly after it is transferred to the employee. Use of this springing cash value life insurance gives employers tax deductions for amounts far in excess of what the employee recognizes in income. These regulations, which will be effective for transfers made on or after today, will prevent taxpayers from using artificial devices to understate the value of the contract. A revenue procedure issued today along with the proposed regulations provides a temporary safe harbor for determining fair market value.
Second, a new revenue ruling states that an employer cannot buy excessive life insurance (i.e., insurance contracts where the death benefits exceed the death benefits provided to the employee’s beneficiaries under the terms of the plan, with the balance of the proceeds reverting to the plan as a return on investment) in order to claim large tax deductions. These arrangements generally will be listed transactions for tax-shelter reporting purposes.
Third, another new revenue ruling states that a section 412(i) plan cannot use differences in life insurance contracts to discriminate in favor of highly paid employees.
Copies of the proposed regulations, the revenue procedure, and the two revenue rulings are attached.
Related Links:
Revenue Ruling 2004-20 (PDF 65K)
Revenue Ruling 2004-21 (PDF 58K)
Revenue Procedure 2004-16 (PDF 71K)
Proposed Regulations (PDF 50K)
A syndicated conservation easement is a transaction in which a promoter brings together a group of investors, places them into a passthrough entity (such as a partnership), uses the investment funds to purchase land, and then places a conservation easement on the land that restricts the private use of the property in order to protect its conservation value. The partnership takes a charitable deduction for the reduction in value of the property that occurred when the partnership made a donation of the easement to a land trust, and then passes through that tax deduction to the investors on a Form K-1.
ReplyDeleteWho are some of the parties who may have been involved in syndicated conservation easement deals that could flag IRS audit and other investigations?
Ornstein-Schuler Investments, LLC (OSI)
Strategic Group / (Ricky Novak & James Freeman)
Sixty West, LLC (a.k.a. 60 West)
Inland Capital (Jack Fisher / Agee, Fisher, Barrett, LLC)
Aprio, LLP f/k/a Habif, Arogeti & Wynne, LLP
Webb Creek Management Group, LLC
Evrgreen Management Group, Inc. (a.k.a. Evergreen) (Matt Campbell)
EvrSource Capital (a.k.a. Eversource) (Chip Pearson)
Ecovest Capital, Inc.
GBX Group, LLC (formerly Global X)
Eco Terra Management, LLC
Effingham Managers, LLC
Greencone Investments, LLC
Awahili Alliance, LLC / (Jim Adams)
Old Ivy Capital Partners / (Steve Bush & Dan Carbonaro)
Forever Forests, LLC (Nancy Zak)
Credo Financial Services, LLC
Emerald Property Investors, LLC / (Kowan, Cordon & Graham)
PeachCap
Piedmont Private Equity
Sequence Financial Specialists, LLC
Large & Gilbert, Inc.
Bennett Thrasher, LLC
The Private Client Law Group
Carney Conservation Easement Consultants, LLC
Southern Conservation Group, LLC
Capital Conservation Consultants, LLC
https://money.cnn.com/1999/04/21/life/q_variable/
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ReplyDelete