Get Sued

by Lance Wallach

The IRS is 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. Below are the most common 419 tax reduction insurance plans.

These come in various versions, and most of them have or will get the participant audited and the salesman sued. They purportedly allow the business owner to make a large tax-deductible contribution, and some or all of the contribution pays for a life insurance product. The IRS has been disallowing most versions of these plans for years, yet they continue to be sold. After everyone gets into trouble and the insurance agents get sued, the promoters of the abusive versions sometimes change the name of their company and call the plan something else. The insurance companies whose policies are sold are legitimate companies. What usually is not legitimate is the way that most of the plans are operated.
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1 comment:

irsdogAugust 22, 2014 at 11:54 AM
alleged unfair and deceptive business practices related to 412(i) retirement benefit pension plans. These plans are defined benefit pension plans created under Section 412(i) of the Internal Revenue Code, and were marketed and sold by companies including Avia, American General Life, David Cline, Inc, Greenbook Financial Services, Indianapolis Life Insurance Company, Fox & Fox Benefit Consultants & Administrators, Washington Trust Bank, and others.

Plaintiffs allege these and other companies knowingly misled plan participants by advertising these plans would provide a legitimate tax deductible way to save for retirement, that all earnings would be tax deferred, that they would be able to take short-term tax-free loans against their policy’s value, and be able to exit their plans within as little as 5 years.

Plan participants charge that insurers have engaged in unfair, deceptive, and bad faith business practices in the marketing and sale of these so-called 412(i) retirement pension plans. They allege that, for among other reasons, these policies do not, in fact, qualify as 412(i) plans because:

the plans were funded entirely with life insurance policies;
they were not intended to be permanent plans; and
they broke non-discriminatory rules in their marketing to enroll only the most highly compensated employees.
Consumer Legal Rights

State and federal consumer protection laws provide consumers who were victimized by unlawful business practices. In many consumer protection cases, however, the cost of prosecuting individual lawsuits for each consumer is prohibitive.

The law does not leave the consumer powerless. Individual consumers may band together in a class action lawsuit, thereby representing all consumers who were victimized by a deceptive business practice. A class action can provide an effective means for consumers to force a corporation to acknowledge its legal responsibilities, halt fraudulent practices and provide monetary relief to all members of the class.