Participants Of Professional BenefitsTrust/PBT/Mavin/Acadia Likely
To Lose 50% Of Their Assets Per Year Under FBAR Reporting Rules As A Result Of
DOJ Enforcement Action Against Tracy Sunderlage, Mavin LLC
Professional Benefits Trust | 419Litigation
Potential
trouble (419 Litigation) is in store for any participants of the Professional
benefits trust (“PBT”) who chose to continue in the “welfare plan” and allow
the assets to be moved offshore and be deposited into the Mavin Assurance and
Acadia annuities are in danger of losing 50% of their assets per year in
penalty payments to the United States Treasury.
On
July 13, 2011, the Department of Justice sued Tracy Sunderlage, Mavin LLC and
others in federal court in the Northern District of Illinois claiming that the
PBT/Mavin/Aciadia scheme constitutes an offshore income tax scam. The DOJ seeks
to enjoin the activities of these parties–but it also seeks to gain information
about taxpayers who are participating in the Mavin and Acadia transations. Once
the DOJ acquires the participant list in the lawsuit the IRS will commence
enforcement activities against the participants the lists reveal.
2 comments:
Advisers staring at a new ‘slew' of litigation from small-business clients
Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price
By Jessica Toonkel Marquez
October 14, 2009
Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.
For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.
However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.
Many companies and financial advisers didn't realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.
The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are $200,000 per business per year the plan has been in place and $100,000 per individual.
So advisers who sold these plans to small business are now slowly starting to become the target of litigation from employers who are subject to these fines.
“There is a slew of litigation already against advisers that sold these plans,” said Lance Wallach, an expert on 412(i) and 419 plans. “I get calls from lawyers every week asking me to be an expert witness on these cases.”
Mr. Wallach declined to cite any specific suits. But one adviser who has been selling 412(i) plans for years said his firm is already facing six lawsuits over the sale of such plans and has another two pending.
“My legal and accounting bills last year were $864,000,” said the adviser, who asked not to be identified. “And if this doesn't get fixed, everyone and their uncle will sue us.”
Currently, the IRS has instituted a moratorium on collecting these fines until the end of the year in the hope that Congress will address the issue.
In a Sept. 24 letter to Sens. Max Baucus, D-Mont., Charles Boustany Jr., R-La., and Charles Grassley, R-Iowa, IRS Commissioner Douglas H. Shulman wrote: “I understand that Congress is still considering this issue and that a bipartisan, bicameral bill may be in the works … To give Congress time to address the issue, I am writing to extend the suspension of collection enforcement action through Dec. 31.”
But with so much of Congress' attention on health care reform at the moment, experts are worried that the issue may go unresolved indefinitely.
“If Congress doesn't amend the statute, and clients find themselves having to pay these fines, they will absolutely go after the advisers that sold these plans to them,” .
Companies who set up IRS Code Section 419 Welfare Benefit Plans that were funded by life insurance are finding they've got big problems. Although insurance agents told business owners that their contributions would be tax deductible, they're actually reportable transactions – which has left many companies owing taxes they simply can't pay.
What is a 419 welfare benefit plan?
A welfare benefit plan is effectively a corporate-sponsored insurance plan, according to Steve Burgess, an insurance expert on 412(i) pension and 419 welfare benefit plans. He explained, “A corporation sets up a trust to provide insurance benefits for its employees. That’s the basic concept behind it. The corporation's contributions into the trust are tax-deductible and many of these plans allow you to pick and choose which employees you want involved in the plan.”
Abuses with plans funded with life insurance
Burgess says that while not all of these plans bad, the ones that are bad are very abusive – and those generally happen with plans that are funded with life insurance and that are commission-driven. He told us:
Basically what happens is that an insurance agent comes to a business owner and says, 'Hey, I can put this plan in place for you. You can make contributions to it. I’ll set it up so that your money goes into this nice life insurance policy and it will all be tax-deductible to you. Then at some point in the future, you can borrow the money back and not pay any taxes on it.'
What people don't realize is that, again, like 412(i) plans (link to article entitled 412(i) Pension Plan Fraud: Schemes Motivated By Big Insurance Commissions), many of these plans are reportable transactions to the IRS and that they’re not always compliant with how a welfare benefit plan is supposed to be set up. They get audited by the IRS who tells them they're not going to allow it and that they're going to have to restate the income and pay taxes on it.
Two big issues surrounding 419 schemes
There are two big issues surrounding 419 schemes, according to Burgess – paying taxes on the plan and finding out that individuals and companies no longer have any rights in the policy. He explained each issue:
Paying taxes. Although somebody has spent a great deal of money to set this thing up, the IRS tells them, 'No, this doesn’t work.' They now have to report the money they put into the policy as income and they owe the taxes on it. However, the policy’s got a big surrender charge on it and you can’t just take the money out of the policy to pay the taxes because there’s not enough available to you. That's a very big issue.
No rights. The other issue is that once people get into these plans, they find out that the trust that was set up actually owns the policy, not the individual and not the corporation, and they no longer have any rights in that policy. So, they have to wait years and years and years to get anything back out.
If you've been the victim of a fraudulent or abusive tax shelter scheme,
Read more: http://employment-law.freeadvice.com/employment-law/pensions_benefits/big-problems-with-419-welfare-benefit-plans-funded-by-life-insurance.htm#ixzz3Ej8LIRU2
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