"Niche" "Bisys" "Veba" "Doug Williams" "arch bonnema" "steve toth" "captive insurance" "michael sonnenberg" "ron snyder" "brian cave" "benistar" "norm
    bevan" "doug williams"  " williams coulson" "dennis cunning" "phil rowe" "sadi trust" "beta plan" "millennium plan" "grist mill trust" "compass welfare benefit plan"
    "sea nine" "professional benefits trust" "kenny harstein," "integrity 419" "integrity benefit plan" "veba plan" "sterling 419" "judy carsrud"

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By: Lance Wallach
Published by John Wiley and Sons, Inc.
Copyright 2010.  All rights reserved.

Excerpts have been taken from this book about:

Bruce Hink, who has given me permission to utilize his name and circumstances, is a perfect example of what the IRS is doing to
unsuspecting business owners.  What follows is a story about Bruce Hink and how the IRS fined him $200,000 a year for being in what
they called a “listed transaction”.  In addition, I believe that the accountant who signed the tax return and the insurance agent who sold
the retirement plan will each be fined $200,000 as material advisors.  We have received a large number of calls for help from
accountants, business owners, and insurance agents in similar situations.  Don’t think this will happen to you?  It is happening to a lot of
accountants and business owners, because most of these so-called listed, abusive plans, or plans substantially similar to the so-called
listed, are currently being sold by most insurance agents.  

Bruce was a small business owner facing $400,000 in IRS penalties for 2004 and 2005 for his 412(i) plan (IRC6707A).  Here is how the
story developed.

In 2002 an insurance agent representing a 100-year-old well-established insurance company suggested he start a pension plan.  Bruce
was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and to offer
an opinion.  The CPA gave the plan the green light and the plan was started for tax year 2002.

Contributions were made in 2003.  Then the administrator came out with amendments to the plan, based on new IRS guidelines, in
October 2004.

The business owner’s agent disappeared in May 2005 before implementing the new guidelines from the administrator with the insurance
company.  The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that
had not been applied, and without an agent.

I took six months of making calls to the insurance company to get a new insurance agent assigned.  By then, the IRS had started an
examination of the pension plan.  Bruce asked for advice from the CPA and the local attorney (who had no previous experience in such
cases), which made matters worse, with a “big name” law firm being recommended and more than $30,000 in additional legal fees being
billed in three months.

To make a long story short, the audit stretched on for more than two years to examine a two-year old pension with four participants and
$178,000 in contributions.

During the audit, no funds went to the insurance company.  The company was awaiting IRS approval and restructuring the plan as a
traditional defined benefit plan, which the administrator had suggested and which the IRS had indicated would be acceptable.  The
$90,000 2005 contribution was put into the company’s retirement bank account along with the 2004 contribution.

In March 2008, the business owner received an apology from the IRS agent who headed the examination.  Even this sympathetic IRS
agent thinks there is a problem with the IRS enforcement of these Draconian penalties.  Below is one of her emails to the business owner
who was fined $400,000.

    Date: Tue, Mar 4, 2008 at 7:12 AM
    Subject: RE: Urgent
    To: Bruce Hink  <brucehink@XXXXXXX.com>

    Thanks Bruce – yes – please just overnight then to the Grand Rapids address.  Once again, I’m sorry about this.  Basically, our
    Counsel told us that we needed language specific to the IRC 6707A penalty in order for that statute to be extended.  I will ask the
    Reviewer to hold off an extra day.
           I’m also very sorry that this is getting you down.  Deeply sorry.  It’s very difficult for me as well – before I started working on
    this project (412(i)) I was doing audits of 401(k) and profit sharing plans.  If there was an error on the plan, the employer would
    just fix it and the audit was over.  There wasn’t anything controversial about it – and I felt like I was helping people – employers
    and plan participants.  I really liked my job.  In two years time, that has completely changed.  I know it’s not very “professional” to
    make such confessions – so forgive me.  But I guess I just wanted you to know that I really sympathize with your situation – and
    have been doing whatever I can to help.  I know that having this hanging over your head can’t be fun – but as this project goes
    forward – I think that the IRS is going to have to soften their position somewhat – so these delays may be to your benefit.
         Also, I’m not really supposed to be sending emails to you – but when I went through the file I couldn’t find a good phone
    number for you.  Could you just send me a note or an email with a current phone number?
           Looking to receive the signed 872s on Thursday.  If you have any questions at any time – please call me at XXX-XXX-XXXX. I’
    m usually in the office in the mornings.

The IRS subsequently denied any appeal and ruled in October 2008 that the $400,000 penalty would stand.

Could You or One of Your Clients Be Next?

Some of the areas SB/SE will be examining include pass-though entities, high-income filers, and abusive transactions.  S corporations
are likely to receive particular scrutiny.  Further review would not be limited to S corporations, but would extend to pass-through entities
like partnerships, which can expect to receive a “significant amount of attention” because SB/SE has found an area of abuse and would
like to curb what is called a growing trend of abusive high-income filers, typically classified as those with an adjusted gross income of
more than $200,000.

The IRS has been cracking down on what it considers to be abusive tax shelters.  Many of them are being marketed to small business
owners by insurance professionals, financial planners, and even accountants and attorneys.  I speak at numerous conventions, for both
business owners and accountants.  And after I speak, I am always approached by many people who have questions about tax reduction
plans that they have heard about.

I have been an expert witness in many of these 419 and 412(i) lawsuits and I have not lost one of them.  If you sold one or more of these
plans, get someone who really knows what they are doing to help you immediately.  Many advisors will take your money and claim to be
able to help you.  Make sure they have experience helping accountants who signed the tax returns.  IRS calls them material advisors and
fines them $200,000 if they are incorporated or $100,000 if they are not.  Do not let them learn on the job, with your career and money
at stake.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a
frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.  He writes about 412(i), 419, and captive
insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and
has been featured on television and radio financial talk shows including NBC, National Pubic Radio's All Things Considered, and others.
Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and
Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books,
including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony
and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com.

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.

i,Penn Mutual412i,Bankers Life 412i,John Hancock 412i,Security Mutual 412i,412,Prudential 412i,Kansas City Life 412i,Mass Mutual412i,Guardian 412i,Amerus 412i,Benistar,SADI Trust,Beta 419,Millennium Plan,Bisys,Creative Services Group,Sterling
Benefit Plan,Compass 419,Niche 419,CRESP,Sea Nine Veba,American Benefits Trust,National Benefit Plan and Trust,ABT,Benistar 419 Plan,Millennium 419 Plan,Bisys 419,Creative Services Group 419 Plan,Sterling Benefit 419 Plan,CRESP 419,Sea Nine
Veba 419,National Benefit Plan and Trust 419,American Benefits Trust 419,ABT 419,Dennis Cunning,Steve Toth,Michael Sonnenberg,Larry Bell,Scott Ridge,Randall Smith,Greg Roper,Tracy Sunderlage,Kenny Hartstein,Ridge Plan,Professional Benefits Trust
Excerpt From: Protecting Clients From
Fraud, Incompetence, and Scams
Tax Audit 419.com
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