
Internal Revenue Code Section 79 Plans and Captive Insurance History
When trying to understand how a product becomes the focus of IRS scrutiny it helps to know its history. In the case of plans that fall under Internal Revenue Code Section 79, that history is complex. Insurance companies, agents, financial planners, and others have pushed abusive 419 and 412i plans for years. They claimed business owners could obtain large tax deductions. Insurance companies, agents and others earned very large life insurance commissions in the process.
Eventually, the IRS cracked down on the unsuspecting business owners. Not only did they lose the tax deductions, but they were also fined, in addition to being charged penalties and interest. A skilled CPA with extensive IRS experience could usually eliminate the penalties and reduce the fines. Most accountants, tax attorneys and others, however, have been unsuccessful in accomplishing this.
After the business owner was assessed the fines and lost his tax deduction, he had another huge, unforeseen problem. The IRS then came back and fined him a huge amount of money for not telling on himself under IRC 6707A. If you participate in a listed or reportable transaction, you must alert the IRS or face a large fine.
In essence, you must alert the IRS if you were in a transaction that has the possibility of tax avoidance or evasion. Not only must you file Form 8886 telling on yourself, but the form needs to be filed properly, and done every year that you are in the plan in any way at all, even if you are no longer making contributions.
According to IRC 6707A Expert Lance Wallach, “I have received hundreds of phone calls from business owners who filed Form 8886, usually with the help of their accountants or the plan promoter. They got the fine for either improperly filing, or for making mistakes on the form.”
The IRS directions about preparing the form are vague, especially if the form is filed late. They presume a timely filing. In addition, many states also require forms to be filed.
“For example, if you work in New York State and manage to properly fill out the Federal form, but do not file the State form, you may still get fined,” says Wallach, adding that he only knows of two people that know how to properly prepare and file the forms, especially forms being filed late. As an expert witness in such cases, Lance Wallach’s side has never lost.
The result of the all of the above was many lawsuits against insurance companies, including Hartford, Pacific Life, Indianapolis Life, AIG, and Penn Mutual, to name just a few. Agents, accountants, and attorneys were also successfully sued.
Lately, insurance companies, agents, accountants, and others have been selling captive insurance and Section 79 scams. The motivations are exactly the same. They push large tax deductions for business owners. There are also huge commissions for salespeople, though this is usually mentioned only in passing, if at all.
Anyone participating in a listed or reportable transaction must properly file Form 8886 or face large IRS fines. A listed transaction is any transaction specifically identified as such by published IRS guidance, or one substantially similar to that transaction. A reportable transaction is any transaction that has the potential for tax avoidance or evasion.
“In my experience, the desire to avoid taxes is usually the principal and sometimes the only reason why people participate in Section 79, captive insurance, or 419 plans. That is why I generally take the position that virtually everyone participating in one of these arrangements should properly file Form 8886, if only protectively as a precaution,” says Wallach.
If you do not properly file Form 8886, there is no Statute of Limitations. That means the IRS can come back and fine you many years later. Anyone that wants to risk an IRS audit by utilizing a captive insurance or Section 79 scam should, at the very least, engage a competent professional to file 8886 forms. By filing protectively and properly, the Statute of Limitations starts running and you avoid the very large IRS penalties under 6707A.
Never utilize directions from a plan promoter or salesman as to how to fill out 8886 forms. They would only be attempting to protect themselves, and doing so could result in you being fined. Lance Wallach stated that he knows of many examples of this happening, including a plan promoter who assisted almost 200 business owners in preparing and filing 8886 forms. All of them got fined for improper preparation of the forms.
The two people that have been successful in filing 8886 forms for business owners have had numerous conversations with IRS personnel. They get the impression that it is almost impossible for an accountant, tax attorney, or anyone else to properly prepare and file the forms. One of them, who spent 35 plus years with the IRS, has also been successful in fighting the IRS on penalties and fines assessed against business owners who participate in these plans, though the IRS publicly claims that you cannot appeal the fine under 6707A.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
About the Author
Lance Wallach, captive insurance and Section 79 plan expert, is the nation’s leading authority on resolving IRS tax problems for individuals and businesses.
Mr. Wallach, National Society of Accountants’ Speaker of the Year, is a member of the AICPA faculty of teaching professionals and he is a renowned national expert witness in many 419, 412i, and financial abuse cases. To date his side has never lost a case.
Mr. Wallach is often a featured speaker at national conventions for CPAs, attorneys, and business owners and other entrepreneurs, and has over 30 years experience helping people get the most possible money back from the IRS. He can be contacted at 516-938-5007 or wallachinc@gmail.com, or visit www.taxaudit419.com for more information.
Lance Wallach is the author of many best selling accounting, taxation, and financial books, including:
- Wealth Preservation Planning by the National Society of Accountants
- The CPA’s Guide to Federal and Estate Gift Taxation published by Bisk
- The AICPA’s The Team Approach to Tax, Financial and Estate Planning
- The CPA’s Guide to Life Insurance by Bisk CPEasy
- Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots by the AICPA author / moderator Lance Wallach
Making International Phone Calls : How to Call Finland From the United States
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Supplement to the International Codes 2004 $39.99 This book is in Good Used condition |
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2006 International Plumbing Codes Handbook $50.54 The fast and easy way to understand the 2006 International Plumbing Code Written by authority by a veteran mster plumber and master gasfitter, this indispensable resource interprets and annotates the 2006 International Plumbing Code using real-world examples and clear layperson language. |
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Home Builders’ Jobsite Codes: A Pocket Guide to the 2006 International Residential Code $22.59 Get answers to the most frequently asked questions on the jobsite. Co-published by the NAHB and International Code Council, this convenient guide gives you the information you need at your fingertips. A quick reference to the International Residential Code, the guide provides easy-to-read code requirements for every aspect of residential contruction. This user-friendly guide is packed with illustrations, tables, figures, and a glossary to facilitate your understanding of the codes. Home Builders’ Jobsite Codes is meant to be of practical use on the jobsite, not as a substitiute for the complete codes. |
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Residential Building Codes Illustrated: A Guide to Understanding the 2009 International Residential Code® $35 An easy-to-use illustrated guide to building codes for residential structures As the construction industry moves to a single set of international building codes, architects and construction professionals need an interpretive guide to understand how the building code affects the early design of specific projects. This newest addition to Wiley’s series of focused guides familiarizes code users with the 2009 International Residential Code® (IRC) as it applies to residential buildings. The book provides architects, engineers, and other related building professionals with an understanding of how the International Residential Code was developed, and how it is likely to be interpreted when applied to the design and construction of residential buildings. • User-friendly visual format that makes finding the information you need quick and easy • The book’s organization follows the 2009 International Residential Code itself • Nearly 900 illustrations, by architectural illustrator Steven Juroszek in the style of noted illustrator and author Frank Ching, visualize and explain the codes • Text written by experienced experts who have been instrumental in gaining acceptance for the new unified building codeThis book is an essential companion to the IRC for both emerging practitioners and experienced practitioners needing to understand the new IRC. |
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Plumbing: An Illustrated Guide to the Plumbing Codes $15.77 Code Check Plumbing outlines the principles behind the various accepted plumbing codes and provides information on the code requirements for all types of plumbing installations, including all supply, drain, and vent systems. It is cross-referenced to the current International Residential Code, Uniform Plumbing Code, and Uniform Mechanical Code. The Code Check Series is one of Taunton’s most successful book lines. Spiral bound, with durable laminated pages, the books in this series are designed to be used on-site for quick reference, ensuring that all jobs meet the highest safety standards while drastically reducing code violation call-backs. The Code Check Series is endorsed by the International Conference of Building Officials (ICBO). |
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FM Transmitter For Samsung Fin A513, A517, Mysto A523 $29.99 Features : Lets you listen to your favorite music on the road through a FM radio. Compatible with the following Samsung models : Helio Fin SPH-A513 A517 Helio Mysto SPH-A523 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to a FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Comes with a car charger. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions : 40 x 25 x 10 mm |
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FM Transmitter For Samsung A117, A127, A137, A167, A177 $29.99 Features : Lets you listen to your favorite music on the road through a FM radio. Compatible with the following Samsung model(s) : A117, A127, A137, A167, A177 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to a FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Comes with a car charger. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions : 40 x 25 x 10 mm |
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FM Transmitter For Samsung Access A827, Rugby A837, Eternity A867 $29.99 Features : Allows you to listen to your favorite music on the road through an FM radio. Compatible with the following Samsung models : Access A827, Rugby A837, Eternity A867 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to an FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions (W x H x D) : 40mm x 25mm x 10mm |
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FM Transmitter For LG CU515, Trax CU575, CU720, Vu CU915 CU920 $29.99 Features : Lets you listen to your favorite music on the road through an FM radio. Compatible with the following LG models : CU515, Trax CU575, CU720, Vu CU915 / CU920 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to an FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions (W x H x D) : 40mm x 25mm x 10mm |
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FM Transmitter For Samsung T219, Stripe T329, T509, Trace T519, T629, T809 $29.99 Features : Lets you listen to your favorite music on the road through a FM radio. Compatible with the following Samsung models : T219, Stripe T329, T509, Trace T519, T629, T809 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to a FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Comes with a car charger. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions : 40 x 25 x 10 mm |
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FM Transmitter For Samsung T229, T339 $29.99 Features : Lets you listen to your favorite music on the road through a FM radio. Compatible with the following Samsung models : T229, T339 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to a FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Comes with a car charger. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions : 40 x 25 x 10 mm |
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FM Transmitter For Samsung T409, T429, T439, Gravity T459, Gravity 2 T469 $29.99 Features : Lets you listen to your favorite music on the road through an FM radio. Compatible with the following Samsung models : t409, t429, t439, Gravity t459, Gravity 2 t469 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to an FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions (H x W x D) : 40mm x 25mm x 10mm |
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FM Transmitter For AT&T 8525, AT&T Tilt 8925, Cingular 8525 $29.99 Features : Lets you listen to your favorite music on the road through an FM radio. Compatible with the following HTC models : AT&T 8525 / AT&T Tilt / Cingular 8525 Works with any FM radio including car radios, home radios and portable ones. Allows transmission of music from a cell phone to an FM radio up to 10 metres away. Perfect for sharing music anywhere. Small, lightweight and portable. Powered by your car cigarette lighter via the included car charger. Color : Black Specifications : Frequency response : 100Hz ~ 15000Hz Separation : >=30dB Operating current : 20+/-3mA Transmission range : 87.9MHz ~ 107.9MHz (interval 0.1MHz) Supports international FM frequency ranges. Dimensions (H x W x D) : 40mm x 25mm x 10mm |
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