FBAR - Foreign Bank Account Reporting - The IRS is assessing huge penalties for undisclosed foreign bank accounts, assets and income.
FBAR FILING DEADLING HAS BEEN
EXTENDED
419e,412i,419,412,benefit plan penalties,audits,tax shelter.fraud
Toolbox for Finance Topics Tax Blogsplans are also often designed so that a particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the economic realities of the arrangements.
Benistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The benefits of enrollment listed in its advertising packet included: Virtually unlimited deductions for the employer; Contributions could vary from year to year; Benefits could be provided to one or more key executives on a selective basis; No need to provide benefits to rank-and-file employees; Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans; Funds inside the plan would accumulate tax-free; Beneficiaries could receive death proceeds free of both income tax and estate tax; The program could be arranged for tax-free distribution at a later date; Funds in the plan were secure from the hands of creditors.
The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times.
In rendering its decision the court heavily cited Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The Benistar Plan owned the insurance contracts.
Following Curcio, as the Court has stipulated, the Court held that the contributions to Benistar were not deductible under section 162(a) because participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886,Reportable Transaction Disclosure Statement, or similar disclosure.
The IRS disallowed the latter deduction and adjusted the 2004 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. The IRS also assessed tax deficiencies and the enhanced 30% penalty totaling almost $21,000 against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.
More you should know:
In recent years, some section 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan
An organization to help those harmed by the IRS Home ISSUES THIS CAN HAPPEN TO YOU. More Articles Contact Us 68 Keswick Lane Plainview NY 11803 us 5169385007 vebaplan@gmail.com HomeContact UsTHIS CAN HAPPEN TO YOU.More ArticlesISSUES IRS Audited plaintiffs' plan & concluded that the plan failed to comply with 412(i)(3) because it was "overfunded". The IRS audited plaintiffs’ plan and concluded that the plan failed to comply with § 412(i)(3) because it was “overfunded.”
The United States District Court for the Northern District of Texas recently issued several important decisions in MDL No. 1983, a multidistrict litigation proceeding designed to address claims related to employee benefit plans created under § 412(i) and § 419 of the Internal Revenue Code. For example, in two similar § 419 cases, the Court reaffirmed its earlier rulings and dismissed plaintiffs’ fraud-based claims with prejudice. The Court concluded that the allegations that plaintiffs were induced to establish § 419 plans based on allegedly fraudulent representations that the plans would be valid and subject to favorable future tax consequences were simply non‑actionable
The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012 on the heels of strong interest in the 2011 and 2009 programs. The IRS may end the 2012 program at any time in the future.
The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.
This is a continuation of the program introduced in 2012 with modified terms, but for purposes of referring to this modified program, it may be referred to as the 2014 OVDP. The modifications are effective July 1, 2014. See below for links to both the original and modified program terms.
In addition to the OVDP, the IRS offers other options available for U.S. taxpayers with undisclosed foreign financial assets. OVDP Documents and Forms
Questions and Answers Updated Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers (2014 Program) 2012 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers Transition Rules Frequently Asked Questions Documents Form 14452, Foreign Account and Asset Statement Offshore Voluntary Disclosure Letter and attachment Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. 5321 for FBAR Violations Instructions for Completing Consents Forms Form 114, Report of Foreign Bank and Financial Accounts (FBAR) Form 433A, Collection Information Statement for Wage Earners and Self-Employed Individuals Form 433B, Collection Information Statement for Businesses Form 872, Consent to Extend the Time to Assess Tax Power of Attorney Form for the Offshore Voluntary Disclosure Initiative Worksheets Form 14453, Penalty Computation Worksheet News Releases and Fact Sheets IR-2014-73, IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance FS-2014-7, Offshore Income and Filing Information for Taxpayers with Offshore Accounts FS-2014-6, IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate IR-2012-64, IRS Says Offshore Effort tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole IR-2012-64SP, Esfuerzo Extranjero del IRS Supera $5 Mil Millones; Detalles del Programa de Divulgación Voluntaria y Cierre de Laguna Jurídica IR-2012-65, IRS Announces Efforts to Help U.S. Citizens Overseas, Including Dual Citizens and Those with Foreigh Retirement Plans IR-2012-65SP, IRS Anuncia Ayuda a Estadounidenses en el Extranjero, Incluyendo Aquellos con Doble Nacionalidad y Planes de Jubilación Extranjeros IR-2012-5, IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens
Toolbox for Finance Topics Tax Blogsplans are also often designed so that a particular employer’s contributions or its employees’ benefits may be determined in a way that insulates the employer to a significant extent from the experience of other subscribing employers. In general, the contributions and claimed tax deductions tend to be disproportionate to the economic realities of the arrangements.
ReplyDeleteBenistar advertised that enrollees should expect to obtain the same type of tax benefits as listed in the transaction described in Notice 95-34. The benefits of enrollment listed in its advertising packet included:
Virtually unlimited deductions for the employer;
Contributions could vary from year to year;
Benefits could be provided to one or more key executives on a selective basis;
No need to provide benefits to rank-and-file employees;
Contributions to the plan were not limited by qualified plan rules and would not interfere with pension, profit sharing or 401(k) plans;
Funds inside the plan would accumulate tax-free;
Beneficiaries could receive death proceeds free of both income tax and estate tax;
The program could be arranged for tax-free distribution at a later date;
Funds in the plan were secure from the hands of creditors.
The Court said that the Benistar Plan was factually similar to the plans described in Notice 95-34 at all relevant times.
In rendering its decision the court heavily cited Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the insurance policies, overwhelmingly variable or universal life policies, required large contributions relative to the cost of the amount of term insurance that would be required to provide the death benefits under the arrangement. The Benistar Plan owned the insurance contracts.
Following Curcio, as the Court has stipulated, the Court held that the contributions to Benistar were not deductible under section 162(a) because participants could receive the value reflected in the underlying insurance policies purchased by Benistar—despite the payment of benefits by Benistar seeming to be contingent upon an unanticipated event (the death of the insured while employed). As long as plan participants were willing to abide by Benistar’s distribution policies, there was no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapses.
The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 and claimed deductions for contributions to it in 2002 and 2005. The returns did not include a Form 8886,Reportable Transaction Disclosure Statement, or similar disclosure.
The IRS disallowed the latter deduction and adjusted the 2004 return of shareholder Robert Prosser and his wife to include the $50,000 payment to the plan. The IRS also assessed tax deficiencies and the enhanced 30% penalty totaling almost $21,000 against the clinic and $21,000 against the Prossers. The court ruled that the Prossers failed to prove a reasonable cause or good faith exception.
More you should know:
In recent years, some section 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay. Ideally, the plan should limit the proceeds that can be paid as a death benefit in the event of a participant’s death. Excess amounts would revert to the plan
ReplyDeleteAn organization to help those harmed by the IRS
Home
ISSUES
THIS CAN HAPPEN TO YOU.
More Articles
Contact Us
68 Keswick Lane Plainview NY 11803 us 5169385007 vebaplan@gmail.com
HomeContact UsTHIS CAN HAPPEN TO YOU.More ArticlesISSUES
IRS Audited plaintiffs' plan & concluded that the plan failed to comply with 412(i)(3) because it was "overfunded".
The IRS audited plaintiffs’ plan
and concluded that the plan failed to comply with § 412(i)(3) because it was
“overfunded.”
The United States District Court for the Northern District of Texas recently
issued several important decisions in MDL No. 1983, a multidistrict
litigation proceeding designed to address claims related to employee
benefit plans created under § 412(i) and § 419 of the Internal Revenue Code. For
example, in two similar § 419 cases, the Court reaffirmed its earlier rulings and
dismissed plaintiffs’ fraud-based claims with prejudice. The Court concluded
that the allegations that plaintiffs were induced to establish § 419 plans based
on allegedly fraudulent representations that the plans would be valid and
subject to favorable future tax consequences were simply non‑actionable
ReplyDeleteThe IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012 on the heels of strong interest in the 2011 and 2009 programs. The IRS may end the 2012 program at any time in the future.
The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.
This is a continuation of the program introduced in 2012 with modified terms, but for purposes of referring to this modified program, it may be referred to as the 2014 OVDP. The modifications are effective July 1, 2014. See below for links to both the original and modified program terms.
In addition to the OVDP, the IRS offers other options available for U.S. taxpayers with undisclosed foreign financial assets.
OVDP Documents and Forms
Questions and Answers
Updated Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers (2014 Program)
2012 Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers
Transition Rules Frequently Asked Questions
Documents
Form 14452, Foreign Account and Asset Statement
Offshore Voluntary Disclosure Letter and attachment
Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. 5321 for FBAR Violations
Instructions for Completing Consents
Forms
Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Form 433A, Collection Information Statement for Wage Earners and Self-Employed Individuals
Form 433B, Collection Information Statement for Businesses
Form 872, Consent to Extend the Time to Assess Tax
Power of Attorney Form for the Offshore Voluntary Disclosure Initiative
Worksheets
Form 14453, Penalty Computation Worksheet
News Releases and Fact Sheets
IR-2014-73, IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance
FS-2014-7, Offshore Income and Filing Information for Taxpayers with Offshore Accounts
FS-2014-6, IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate
IR-2012-64, IRS Says Offshore Effort tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole
IR-2012-64SP, Esfuerzo Extranjero del IRS Supera $5 Mil Millones; Detalles del Programa de Divulgación Voluntaria y Cierre de Laguna Jurídica
IR-2012-65, IRS Announces Efforts to Help U.S. Citizens Overseas, Including Dual Citizens and Those with Foreigh Retirement Plans
IR-2012-65SP, IRS Anuncia Ayuda a Estadounidenses en el Extranjero, Incluyendo Aquellos con Doble Nacionalidad y Planes de Jubilación Extranjeros
IR-2012-5, IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens