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Life Insurance
IRS Says Most 419 Plans
Are Abusive Tax Shelters
IRS Says Most 419 Plans
Are Abusive Tax Shelters
by Lance Wallach, CLU, ChFC, CIMC
O
Be skeptical of the plan
promoter who says that all
the other 419 plans are
abusive, but that their plan
is legal. It appears that
almost every so called “419
plan” is abusive.
n October 17, 2007, the IRS, in
Notice 2007-83, identified as listed
transactions certain trust
arrangements involving cash value life
insurance policies. Revenue Ruling
2007-65, issued simultaneously,
addressed situations wherein the tax
deduction has been disallowed, in whole
or in part, for premiums paid on such
cash value life insurance policies. These
arrangements claim to be welfare benefit
plans.
Taxpayers participating in listed
transactions must disclose such
participation to the Internal Revenue
Service. Failure to disclose can result in
severe penalties, up to $100,000 for
Penalties can also be assessed against the
insurance agent who sold the plan or the
accountant who recommended it. In
Notice 2007-84, the IRS threatened to
impose penalties under IRC Sections 6700
and abettors (insurance agents) even if the
plan is not a listed transactions.
Revenue Ruling 2007-65 describes
situations in which cash value life
insurance is bought for owners or other
employees. These are sold as 419(e),
419A(f)(6), and 419 plans. The
419A(f)(6) plan was previously
categorized as a listed transaction.  Other
arrangements, described by the ruling,
may also be listed
penalties and alternative tax treatment on
companies participating in such arrangements.
The advisor who is approached by a client
about one of these arrangements must
exercise utmost caution and not only on
behalf of the client. Your client must do
impeccable research on the promoter, who
is likely to have once been in the 419A(f)
(6) arena. If that is true, the IRS has his
name and that, in turn, makes an audit far
riskier and more likely. Be skeptical of the
plan promoter who says that all the other
419 plans are abusive, but that their plan is
legal. It appears that almost every so called
“419 plan” is abusive. ❑
––––––––––
Lance Wallach, CLU, ChFC, CIMC, speaks
and writes extensively about VEBAs, life
insurance, and retirement plans. For more
information, call 516-938-5007/935-7346.