Get Tracy Sunderlage Help: Don't Become A "Material Advisor"

Get Tracy Sunderlage Help: Don't Become A "Material Advisor": Don't Become A "Material Advisor"

Don't Become A "Material Advisor"

Don't Become A "Material Advisor"

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Lance Wallach - Life insurance, Insurance Adviser,Benistar post 65 retiree

Lance Wallach - Life insurance, Insurance Adviser,Benistar post 65 retiree

Nikolai S. Battoo, The Fund Manager Chased By Two Regulators

Two federal regulatory agencies are in hot pursuit of a shadowy hedge fund figure and various companies associated with him, claiming they pumped millions into Bernard Madoff feeder funds and other unsuccessful investments, and then lied about the losses.

On Sept. 7, both the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission filed actions in the federal Northern District of Illinois against Nikolai S. Battoo, 41, who apparently has most recently operated in Florida.
In announcing its action, the SEC said Battoo has run numerous hedge funds and claims to manage $1.5 billion for investors worldwide, including at least $100 million in the United States.
Battoo has gathered “tens of millions of dollars” in investments since 2009, all the while losing millions more, the SEC also said in a detailed, 32-page complaint.
He has managed money through a series of companies including BC Capital Group, of Panama, and BC Capital Group Limited, which is believed to be run from Hong Kong. He also manages several hedge funds and is “senior advisor” for an outfit called Private International Wealth Management, and is thought to be affiliated with FuturesOne LLC, a commodities pool located in Lincoln, Neb.
Battoo has been trying to cover up his failures and overstate the value his investments “in a number of ways,” the SEC said. When soliciting investors, Battoo has claimed an outstanding track record and “exceptional risk-adjusted returns,” according to the SEC. The agency calls Battoo’s financial empire “an amorphous syndicate of far-flung funds, entities and affiliates.”
Battoo investors suffered serious losses in 2008. He was also terminated as investment adviser for a large international bank, which included $138 million worth of hedge funds Battoo had managed. After his firing, the value of the hedge funds plummeted by almost 50 percent, the SEC said.
“Battoo attracted quire a following of investors by proclaiming his investments withstood the test of the financial crisis, but reality seems to have finally caught up with him,” said Robert Khuzami, the SEC’s director of enforcement. “Now, Battoo is offering investors one excuse after another for holding their money hostage.”
Aside from putting tens of millions of dollars into Madoff feeder funds, Battoo also lost millions through a failed derivatives investment scheme, regulators said.
Battoo apparently is now blaming the wreckage of MF Global for his inability to repay investors: “The jig appears to be up,” the SEC court complaint said. “Clients are now clamoring for redemptions, so Battoo has doubled down on his deception.”

The SEC is also going after Tracy Lee Sunderlage, 65, a Battoo colleague who had already been banned from the securities industry after a previous enforcement action. Regulators charge that Sunderlage, who now lives in Florida, poured about $95 million in assets from variable annuities and self-directed Individual Retirement Accounts into Battoo investments.
The SEC is asking a federal court for findings of fact that Battoo and Sunderlage have violated federal laws, and for injunctions to put them out of business. The agency also wants disgorgement of ill-gotten gains and unspecified civil penalties.
In its separate complaint filed in the same court, the CFTC is seeking an order prompted by Battoo and four of his companies in connection with Private International Wealth Management, a series of commodities pools. The CFTC accuses Battoo and the companies of fraud, and is asking that a receiver be appointed and that assets of the companies be frozen.


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Federal Court in Illinois Shuts Down Nationwide “Employee Benefit Plan” Tax Scheme

Department of Justice

Office of Public Affairs
FOR IMMEDIATE RELEASE

Tuesday, March 6, 2012

A federal court has permanently barred Tracy L. Sunderlage, Linda Sunderlage and four companies from operating an alleged scheme to help high-income individuals attempt to avoid income taxes by funneling money through purported employee benefit plans, the Justice Department announced today. Judge John W. Darrah of the U.S. District Court for the Northern District of Illinois entered the permanent injunction orders, to which the defendants consented, against the Sunderlages, SRG International Ltd., of Nevis, West Indies, and three Illinois companies - SRG International U.S. LLC, Maven U.S. LLC and Randall Administration LLC.
                                   
According to the government complaint, the defendants claimed to promote and operate plans that provide insurance benefits to participating companies’ employees, when in fact the scheme is simply a mechanism for the companies’ owners to receive purportedly tax-free or tax-deferred income for their personal use. Tracy Sunderlage and the two SRG International companies allegedly marketed the scheme to high-income professionals who own small, closely held companies. In the most recent version of the alleged scheme, each participant’s company made supposedly tax deductible payments to a purported benefit plan operated by Maven U.S. and Randall Administration. The company’s contributions were then allegedly transferred to an account within a company based in the Caribbean island of Anguilla, in which they were allegedly invested until the owner terminated from the program and received the assets for his or her personal use. The complaint alleged that many participants owned these accounts through offshore trusts, which Tracy Sunderlage and SRG International Ltd. often helped to establish. The complaint alleged that participants from across the country have transferred at least $239 million as part of the scheme and that total contributions may exceed $300 million.
The injunction orders bar the defendants from operating or promoting any purported “welfare benefit plans.” The court also ordered the defendants to provide the government with a list of their customers and to send copies of the injunction orders to their customers.
In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against promoters of tax schemes and preparers of fraudulent tax returns. Information about these cases is available on the Justice Department website.
12-290
Tax Division

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Tracy Sunderlage

All you wanted was a comfortable retirement. What you got was fraud, incompetence, and scams. Fortunately, Lance Wallach and his team are 
here to help you protect your assets and keep the IRS out of your pockets!

Call 516-938-5007

The SEC alleges that Sunderlage – who was charged and banned from the industry by the SEC for participating in an offering fraud in 1986 (SEC v. Sunderlage, et al., 86 C 6101 (N.D. Ill.)) – received commissions from the sale of investments and also received management fees for acting as the designated investment adviser to numerous client trusts that invested with Battoo. Sunderlage thus acted as an unregistered broker-dealer and investment adviser in violation of his industry bar.




SEC Charges Asset Manager Lied to Investors, Hid Major Losses While Boasting Remarkable Performance During Financial Crisis
FOR IMMEDIATE RELEASE
2012-185

Washington, D.C., Sept. 7, 2012The Securities and Exchange Commission today announced an emergency enforcement action against an asset manager who has boasted remarkable investment success throughout the global financial crisis while allegedly exaggerating the value of the assets he manages and concealing major losses from investors.
The SEC alleges that Nikolai Battoo claims to manage $1.5 billion on behalf of investors around the world, including at least $100 million for U.S.-based investors. But contrary to Battoo’s proclaimed track record of exceptional risk-adjusted returns for his investors, he actually suffered major losses in 2008 due to his investments in the Bernard Madoff Ponzi scheme and a failed derivative investment program. Rather than admit the losses to investors, Battoo has been overstating the value of his investments in a variety of ways. By boasting benchmark-beating returns, he has continued to attract new investors. However, during the past several months, investors have requested redemptions on their investments with Battoo. Instead of paying them, Battoo has provided a series of excuses ranging from the MF Global collapse to others placing a hold on investors’ money due to government investigations.


Additional Materials

  • SEC Complaint


In U.S. District Court for the Northern District of Illinois this week, the SEC sought and obtained a freeze of U.S.-based assets belonging to Battoo and two of his companies – BC Capital Group S.A. based in Panama and BC Capital Group Limited based in Hong Kong – in order to prevent additional harm to U.S. investors. In addition to Battoo and his companies, the SEC has charged Tracy Lee Sunderlage – an unregistered broker-dealer who was banned from the industry in a previous SEC enforcement action – for his involvement with Battoo’s investment program.
“Battoo attracted quite a following of investors by proclaiming his investments withstood the test of the financial crisis, but reality seems to have finally caught up with him,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Now, Battoo is offering investors one excuse after another for holding their money hostage.”
According to the SEC's complaint, Battoo's financial empire is an amorphous syndicate of funds, entities, and affiliates. Battoo manages significant assets for companies that sell investment products to U.S. investors, and has investment proceeds channeled to him by a network of U.S.-based investment advisers. Battoo has created for clients individualized "portfolios" that he manages under a brand name Private International Wealth Management (PIWM). These portfolios consist of holdings in several hedge funds he manages, holdings in other hedge funds, and other investments.
The SEC’s complaint alleges that Battoo pitches himself as a highly successful alternative asset manager with a track record unblemished by the global financial crisis of 2008. Battoo hyped his purported success at a “due diligence conference” that he and Sunderlage sponsored for existing and prospective investors at the Four Seasons Hotel in Las Vegas in January 2009. A promotional material for that conference boasted, “How is it that PIWM-I can produce positive results or significantly reduce market losses when nearly everyone else is losing 35 to 50%?”
According to the SEC’s complaint, Battoo arranged for “asset verifications” in 2009 to reassure clients that their money was safe and secure following the market collapse. The asset verifications, however, contained false and backdated information. For example, they identify investments in at least seven hedge funds that Battoo did not manage. Battoo’s actual investments in these hedge funds amounted to about $9 million while his asset verifications falsely stated the investments to be worth approximately $33 million. Moreover, these asset verifications improperly included backdated investments that also inflated the value of the PIWM portfolios.
The SEC’s complaint alleges that while Battoo claimed success, he actually sustained particularly heavy losses in 2008. First, he was terminated as an investment adviser to the master fund of a large international bank, which terminated him from a “fund linked certificate” program through which Battoo-managed hedge funds collectively invested about $138 million. After Battoo’s termination, the net asset value of the hedge fund managed for the bank plummeted by nearly 50 percent, and Battoo’s losses on the fund-linked certificates exceeded $100 million. The other major loss suffered by Battoo’s asset management business later that year flowed from Bernie Madoff’s Ponzi scheme, in which several Battoo-managed hedge funds were heavily invested. However, following Madoff’s arrest, Battoo assured his investors that the Madoff fraud had only a nominal or minimal impact on the portfolios. However, several Battoo-managed portfolios held substantial investments in hedge funds that fed into the Madoff scheme. In fact, Battoo had borrowed money to amplify the size of his Madoff investments. Battoo similarly concealed from investors the losses stemming from the fund linked certificates. Without knowledge of these substantial losses, investors have collectively invested tens of millions of dollars with Battoo since 2009.
According to the SEC’s complaint, once investors increasingly began seeking redemptions late last year, Battoo offered several false explanations for not paying them. Originally, Battoo claimed that the significant exposure of some of his investment portfolios to the MF Global liquidation prevented him from redeeming investments. However, Battoo’s actual exposure to MF Global is only a small fraction of what he has claimed. More recently, Battoo has said that certain counter parties had frozen the assets he manages based on investigations by U.S. government agencies, and that his attorneys were negotiating a “release” with the SEC. Prior to filing this complaint, Battoo’s assets were not frozen and he was not negotiating any release with the SEC.
The SEC alleges that Sunderlage – who was charged and banned from the industry by the SEC for participating in an offering fraud in 1986 (SEC v. Sunderlage, et al., 86 C 6101 (N.D. Ill.)) – received commissions from the sale of investments and also received management fees for acting as the designated investment adviser to numerous client trusts that invested with Battoo. Sunderlage thus acted as an unregistered broker-dealer and investment adviser in violation of his industry bar.
The SEC alleges that Battoo and his companies violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. The SEC alleges that Sunderlage violated Section 15(a)(1) and 15(b)(6)(B)(i) of the Exchange Act and Section 203(f) of the Advisers Act.
The SEC’s investigation, which is ongoing, has been conducted in the Chicago Regional Office by John D. Mitchell, Brian D. Fagel, Pesach Glaser and John T. Brodersen under the leadership of John J. Sikora, Jr. The SEC's litigation will be led by Jonathan S. Polish, Daniel J. Hayes, and Eric M. Phillips.
The SEC acknowledges the cooperation and assistance of the U.S. Commodity Futures Trading Commission (CFTC), which has filed charges against Battoo in a parallel action.


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IRS’s will get 419 412i and others twice under 6707A


How the IRS is taking a “formalistic approach” in interpreting its own section 6011 regulations on disclosing reportable transactions and not following its own rules on which tax years to assess the Section 6707A penalty.
The IRS is still assessing penalties under Code Section 6707A, the penalty provision applicable to failure to disclose Congress-enacted reportable transactions taken since tax year 2004. Congress amended Section 6707A in 2010 to help alleviate its draconian consequences. They were fining people $100,000 per year on the personal level, and then fining the same parties $200,000 per year on the corporate level. I received phone calls from people who had put under $100,000 into 419, 412i or other plans. Some of them were being fined $600,000 or more under 6707A for failure to properly disclose using form 8886. Under newly amended Section 6707A, applicable to all penalties assessed after December 31, 2006, the penalty, subject to certain maximum and minimum amounts, is equal to 75% of the decrease in reported tax as a result of the reportable transaction. How the IRS is applying the Section 6707A penalty can be described as “troubling.”
Accountants would call me when their clients got audited for being in a 419, 412i, or other type of listed transaction. The client got audited and settled. The accountant thought they were finished with the IRS. When I told them that they were not they did not believe me. I have received hundreds of these types of phone calls. When I would speak at national accounting conventions, or legal conventions the people did not believe me. When I would write articles for national accounting or other publications people would call me and say it was not true. As an expert witness my side has never lost a case. Enough of this and on to the story.
The following case shows how troubling the IRS position is.
In 2004 and 2005, a taxpayer took deductions for life insurance premiums paid to a Code Section 419(e) plan (419(e) plan). Transactions similar to the 419(e) plan were declared “listed transactions” in Notice 2007-83 on October 17, 2007. Under the applicable version of Treasury Regulation § 1.6011-4(e)(2)(i), the taxpayer was required to file Form 8886 with its “next filed tax return” after the transaction became a listed transaction. Accordingly, the taxpayer was required to file Form 8886 with its 2007 tax return, which it filed on October 14, 2008. The taxpayer did not file Form 8886 with its 2007 tax return. On October 14, 2008, the taxpayer was under audit for its participation in the 419(e) plan.
An IRS letter dated January 15, 2008 informed the taxpayer that it was under examination because of its participation in a widely marketed 419(e) plan. The taxpayer gave the IRS agent (the agent) all of the information requested by the agent. On September 8, 2008, the agent asked the taxpayer to extend until June 30, 2009 the statute of limitations regarding any deficiency related to the 419(e) plan for the 2004 taxable year. The taxpayer agreed to the extension. The agent issued Form 4549 showing the final deficiencies owed by the taxpayer relating to the 419(e) plan on November 7, 2008. The agent didn't include any penalties on the Form 4549 issued — neither a Section 6662 penalty nor a Section 6707A penalty. The taxpayer paid the deficiencies shown on Form 4549 for its 2004 and 2005 tax years. On December 29, 2008, the group manager informed the taxpayer that the examination report was accepted for 2004 and 2005.
On February 22, 2012, the taxpayer received notification that the IRS was proposing to assess a Section 6707A penalty against the taxpayer for the year 2007 because of the taxpayer’s failure to include Form 8886 with its 2007 income tax return. The IRS had requested that the taxpayer extend the statute of limitations for the 2007 tax year until December 31, 2013, which the taxpayer did.
The first question is whether the IRS has asserted the Section 6707A penalty for the correct taxable year. If a taxpayer fails to include the information required under Section 6011 for a listed transaction, Section 6501(c)(10), enacted in 2004 at the same time as Code Section 6707A, operates to extend the statute of limitations by one year after the earlier of (A) the date the Secretary is furnished the information, or (B) the date a material advisor meets a Section 6112(b) request. However, Section 6501(c)(10) cannot extend the statute of limitations if the tax years of participation in the transaction are closed prior to the transaction becoming a listed transaction. Proposed treasury regulation section 301.6501(c)-1(g)(3)(iii) states that “if the taxable year in which the taxpayer participated in the listed transaction is different from the taxable year in which the taxpayer is required to disclose the listed transaction under section 6011, the taxable year(s) to which the failure to disclose relates are each taxable year that the taxpayer participated in the transaction.” The Preamble to the proposed treasury regulation provides that “the taxable year(s) to which the failure to disclose relates is not the taxable year in which the disclosure is required to be filed, but each taxable year that the taxpayer participated in the listed transaction.” Based upon proposed treasury regulation section 301.6501(c)-1(g), the correct taxable years to assess the taxpayer a Section 6707A penalty are 2004 and 2005, the years the taxpayer participated in the listed transaction, not in 2007, the year the taxpayer failed to report the listed transaction.
Under a formalistic interpretation of the Section 6011 treasury regulations, the IRS could assert that the taxpayer is subject to a Code Section 6707A penalty in 2004 and 2005 because the taxpayer has never filed Form 8886. Its argument would be that Section 6505(c)(10) operates to keep the Statute open for those two years because those years were open when the 419(e) plan became a listed transaction on October 17, 2007. If the IRS were to assess the Section 6707A penalty in 2004 and 2005, its assessment in this situation would ignore the purpose of enacting Section 6707A in 2004. That legislative history clearly shows that Congress enacted the provision so that taxpayers would face a severe penalty if they did not give information to the IRS so that the IRS could effectively combat tax shelters. The point of the penalty is to require taxpayers to divulge information. Through treasury regulations issued under Code Section 6011, the IRS requires that the taxpayers divulge information regarding tax shelter investments by filing Form 8886. Because the IRS has information about the listed transaction from auditing the taxpayer, what does the IRS accomplish by penalizing the taxpayer for failing to file Form 8886? If the IRS wanted to punish the taxpayer for failing to file Form 8886, why didn’t the agent assess the section 6707A penalty before she closed her examination on November 7, 2008? Why didn’t her manager send the case back to the agent to assess the section 6707A penalty after reviewing the case?
The facts of the this case are analogous to one issue considered by the United States District Court for the Eastern District of Texas in Bemont Investments, LLC v. United States decided on August 2, 2010, which is on appeal by the government to the Fifth Circuit. The Bemont case involved a Son-of-Boss tax shelter, a listed transaction. In one part of the case, the Court had to decide whether the extended statute of limitations for listed transactions set forth in Code Section 6501(c)(10) had run. The question depended upon whether the IRS had been supplied the required information, which would cause the statute of limitations to commence running. The government maintained that it had not received the relevant information because it had not received a “list” under Section 6212 of the relevant information; that is, it was not required to take into account the information supplied to it because it was not in the proper form. The District Court held against the government on this issue because the government, in fact, had the information it needed to be aware that the plaintiffs had participated in a Son-of-Boss tax shelter.
The IRS decision to assert a Section 6707A penalty against the taxpayer is very troubling. Not only is the IRS taking a “formalistic approach” in interpreting its own section 6011 regulations on disclosing reportable transactions, it is not following its own rules on which tax years to assess the Section 6707A penalty.
I continue to advise people in 419, 412i, captive insurance or section 79 plans to file properly under IRS 6707A. Most still either do not file, or use someone without the proper experience to file. Most get the fine for either not filing or for filing wrong. I do know of two accountants who have been successful in filing properly after the fact. That is hard to do as the instructions for filing after the fact are very hard to follow. I also think that they left out some information. I continue to get calls from people who filed and still got the fines. In fact a 412i promoter helped his apx. 200 clients file 8886 forms. I then learned that they all get the fines for not filing.
When I spoke at the AAACPA convention, lawyers who are CPAs most did not respond to my speech. Within a few days many called me with these 8886 problems. Many do not want to admit that they got their clients in bad trouble with the IRS. When that happens the result is usually a lawsuit.
It is not hard to currently file under IRS 6707A, although most salespeople tell their clients that they don’t have to. Most of those salespeople later get sued by their clients. To file at a later date is very hard. The two people that do this properly tell me it sometimes takes over 20 hours to get the forms right. The accountants and lawyers without experience usually tell me it did not take them long to do the forms. That is too bad for their clients.
Accountants and salesmen also get fined under IRS 6707A. Their fine is a minimum of $100,000 for being what the IRS calls a material advisor. There forms are easy to do, and can be done in about two hours. They are also telling on their clients. When a lawsuit starts this is a very interesting matter. I will write another article on point, or just Google me for more.
The fine under 6707A is for every year the business owner is in the plan. Even if the person did not contribute in some years they still get the fine for those years. Even if the business owner got out of the plan they still get the fine. In addition if they do not properly file under 6707A there is no statute of limitations. I have received phone calls in 2013 from people being just fined under 6707A that went into the plans in 2006, for example. Many of these people were already audited and fined for their contributions to the 419, 412i, etc. plans.
This is a bad situation that most accountants, tax lawyers etc. have no knowledge about. I have authored two bestselling AICPA books with Sid Kess which has chapters on this. I have authored books for Bisk education which has chapters on this. I have authored a book published by John Wiley and sons with chapters on this. I have authored many articles for accounting and other publications on point. I am not bragging. My point is people either do not believe what is going on, or maybe they simply do not think the IRS could be doing this. Believe it because the IRS is doing this to a lot of honest people. Worst of all the IRS says that the fine cannot be appealed.