Business owners and professionals who have adopted 419
welfare benefit plan arrangements are in serious trouble. The IRS has attacked
these arrangements as "listed transactions." Business owners who
engage in a "listed transaction" must report such transactions on IRS
Form 8886 every year that they are participating in the transaction, and you
are participating even in years when you do not make any contribution. Internal
Revenue Code 6707A imposes severe penalties ($200,000 annually for a business
and $100,000 per year for an individual) for failure to file Form 8886 with
respect to a listed transaction. Tax Court, according to both the IRS Appeals
Office and its own decisions, does not have jurisdiction to abate or lower any
penalties imposed by the IRS. Complaints caused Congress to impose a moratorium
on collection of Section 6707A penalties.
On June 1, 2010, the moratorium ended, and the IRS immediately began
sending out notices warning of possible imposition of 6707A penalties. When you get this notice it should be taken
very seriously.
Accountants were required to properly prepare and file Form
8918 (if they signed and/or prepare tax returns and got paid). The penalty for
accountants for not properly filing the forms is $100,000, or $200,000 if they
are incorporated.
Businesses that were in some 419 welfare benefit plans or
some 412i retirement as well as some Captive Insurance and Section 79 Plans,
were supposed to properly file under IRC Section 6707A each year with the IRS.
Either the taxpayer or the accountant was responsible, though the ultimate,
primary obligation falls on the taxpayer. The IRS has just begun sending the
notices referred to above to participants in many of these plans. This is in addition
to any IRS audit you might have had or currently may be having. The large 6707A
fine has nothing to do with any other IRS audit. The 6707A fine is for not
having properly filed under 6707A with your returns. You are required to file
each year with your tax return.
Not only were you required to file with your Federal return,
but many states also require protective filings. Some participants in these
types of plans have already received notices from the IRS. You must act
immediately if you wish to avoid possible huge IRS penalties and interest that
could put you out of business for good.
THE STATUTE OF LIMITATIONS IS NOT RUNNING. This means that
the IRS can fine you at any time in the future for anything regarding past or
present participation in an abusive 419 welfare benefit plan or an abusive 412i
retirement plan. There is still time to avoid the IRS penalties and interest.
You need to take action immediately and find out right away if the plan you are
participating in is abusive by consulting with a professional and experienced
419/412i plan expert.
Most accountants do not know how to properly prepare the
appropriate forms. Accountants or other advisors will probably be fined as
material advisors. This means that you may be subject to a large fine. Once you
get the large fine, the IRS claims it is not subject to an appeal.
You should have filed protectively for every year your
entity participated in the plan. Once again, for every year after 2003, the
penalty for not properly filing is $200,000 a year for corporations and
$100,000 a year for individuals. For example, it is possible an employer in the
plan since 2004 could be subject to over one million dollars in penalties
solely as a result of the failure to file. For all years in the plan, the Statute
of Limitations will not begin to run until after the form is properly filed. In
addition, certain individual plan participants should also file for every year
of plan participation. Once again, none of this has anything to do with any
other audit that you may currently be involved in or may previously have
experienced.
It is abundantly clear that taxpayers who receive notices
from the IRS regarding Section 6707A penalties should take these letters
extremely seriously. These notices do not lend themselves to
"do-it-yourself eye surgery".
