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What to do if you have a 419 Plan

The IRS to attacks the legitimacy of deductions taken for contributions to Section 419 plans in all circumstances. In addition, the IRS has classified most Section 419 arrangements as “listed transactions.” Any employer who currently sponsors a plan is well advised to take immediate action to terminate the plan and seek the assistance of an Expert Witness before the IRS contacts you.

A listed transaction refers to transactions that the IRS considers “abusive” and/or “tax shelters” transactions. Under applicable Treasury Regulations, taxpayers who enter into such transactions are required to notify the IRS each year by filing Form 8886 with their annual tax return. Those employers who do not file Form 8886 for a particular year are liable for a penalty under Section 6707A of the Code equal to the lesser of $200,000 or 75 percent of the amount of the decrease in tax occasioned by the listed transaction; this comes with a minimum penalty of $10,000. Individuals may also be liable for a tax equal to the lessor of $100,000 or 75 percent of the decrease in tax, with a minimum penalty of $5000. You may not amend you tax returns to file Form 8886 if one has not been filed with the initial return.
Those sponsors who are under audit by the IRS have reason for concern. In most cases there is typically room for some negotiation. In cases where the deduction is relatively small and the taxpayer was simply following the instructions of a promoter or tax professional, there is a possibility that the IRS can be convinced not to assert a listed transaction penalty
Taxpayers who fail to contact an experienced professional could get into a lot of trouble.All taxpayers, whether under audit or not, should take immediate steps to separate themselves from the Section 419 arrangement. Most plans will return benefits and/or policies to participating employers or eligible employees upon the employer’s withdrawal from participation. However, to the extent a tax deduction was taken for contributions to the plan, the employer or individual will incur taxable income and taxpayers need to plan for this eventuality.
With the assistance of knowledgeable Expert Witness, employers and business owners who participated in Section 419 arrangements can survive the ordeal with minimal cost and disruption to their business.

As an expert witness Lance Wallach has never lost a case. Everyone that I have helped has been made whole!

By Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He is an American Institute of CPA’s course developer and instructor and has authored numerous bestselling books about abusive tax shelters, IRS crackdowns and attacks and other tax matters. He speaks at more than 20 national conventions annually and writes for more than 50 national publications.

Copyright Lance Wallach, CLU, CHFC

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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