|
1
|
|
|
2
|
- 858.444.2300
- rbutterfield@bsllp.com
|
|
3
|
- IRC § 412(i) fully insured Defined Benefit Plan
- IRC § 419A(f)(6) Welfare Plans
- 419(e) Welfare Plan
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8
|
|
|
9
|
|
|
10
|
|
|
11
|
|
|
12
|
|
|
13
|
|
|
14
|
|
|
15
|
|
|
16
|
- Insurance Company Disclaimer Form
- Recent case in Federal District Court
Omni Home Financing v. Hartford Life and Annuity Insurance Co.
4-29-08.
|
|
17
|
- Reasonable reliance ordinarily cannot be shown when written documents
contradict alleged oral misrepresentations.
- The disclaimers the trustee signed clearly explained that the Company
should not rely on Hartford and the Agent for legal and tax advice
- The documents were not long in length and thus were not burdensome to
read, and the Company principals were sophisticated business people
- The Company could not show reasonable reliance
|
|
18
|
- Never knowingly let your client enter into a transaction involving a
financial institution, insurance company, etc. where such a form is to
be signed (getting independent advice is always the best practice even
if a form like that is not presented).
|
|
19
|
- Suing a local tax practitioner over a disallowed deduction to a 419(e)
Welfare Plan.
- Defense: was that the funds are irrevocably transferred to the Welfare
Plan, thus if the employer had irrevocably transferred the funds to
someone
- Problem with the theory
|
|
20
|
- Settled law is the burden of proof switches to the Defendant to prove
the IRS was wrong in a case where the IRS has disallowed a deduction.
Taxpayers who believe a tax practitioner committed malpractice do not
have to litigate the case through Tax Court and beyond to establish
malpractice.
|
|
21
|
- Some financial outfits/financial planners/lawyers are promoting post –
retirement medical benefit and life insurance benefit plans (rules limit
life insurance to $50,000 of coverage)
- The “pitch” is “wink-wink”, “you will terminate the business or all
employees before they reach retirement age, and thus no one but the
owners will get anything.”
|
|
22
|
- IRS is aware
- “The tax benefit rule may require that some or all of the deductions
taken by the employer in earlier years be included in its income in
later years when an event occurs that is fundamentally inconsistent with
the premise on which the deductions were initially based.”
|
|
23
|
|
|
24
|
- 1. Client creates management or consulting firm Company A contracts with
Company B for management marketing and/or consulting services and shifts
money to Company B.
- 2. Company B employs Company B’s owner and pays him/her salary. Company B establishes a Defined
Benefit Plan and/or a 419(e) Welfare Plan. Company A employees not covered under
Defined Benefit Plan. The Defined Benefit Plan occasionally is a 412(i)
fully insured plan.
|
|
25
|
- 3. Company A contracts with Company B for management marketing and/or
consulting services and shifts money to Company B.
- 4. Company B employs Company B’s owner and pays him/her salary. Company B establishes a Defined
Benefit Plan and/or a 419(e) Welfare Plan. Company A employees not covered under
Defined Benefit Plan. The Defined Benefit Plan occasionally is a 412(i)
fully insured plan.
Does it work? NO.
|
|
26
|
- Similar variation of Strategy #1 except there are two side corporations:
- California corporation #1 owned by same people who own corporation # 2
below – employees work here.
- California corporation #2 owned by same owners as corporation #1 with
Pension Plan covering owners only (how the lawyer though that flew is a
mystery)
- California corporation with Pension Plan owned by an irrevocable trust
|
|
27
|
- Main corporation with non-owner employees
- Management Company owned by Irrevocable Trust
- S corporation owned by ESOP – with revenue source from royalties of
intellectual property or other services coming from “main corporation”.
|
|
28
|
- Get this! Local CPA firm sets
up two corporations
- California – employees are here – No Pension
- Nevada – owners here – Pension
|
|
29
|
- Los Angeles County based practitioner who reportedly has dozens of local
clients
- Incorporated business
- Set up 419(e) Plan and Defined Benefit Pension Plan
- Don’t hire an actuary, just put in whatever you want and deduct it.
- Don’t cover any employees.
|
|
30
|
- Contest the IRS determinations and go “unagreed”
- Settle the Case on terms
- Agree to IRS Position on Plan closure and all issues but the penalties
|
|
31
|
|
|
32
|
|
|
33
|
|
|
34
|
|
|
35
|
|
|
36
|
|
|
37
|
|
|
38
|
|
|
39
|
|
|
40
|
|
|
41
|
|
|
42
|
|
|
43
|
|
|
44
|
|
|
45
|
|
|
46
|
- Calendar Year S Corp
- DBP year of December 1 to November 30
|
|
47
|
- Pension Protection Act of 2006
|
|
48
|
|
|
49
|
|
|
50
|
|
|
51
|
|
|
52
|
|
|
53
|
|
|
54
|
- Deductible?
Are you or your spouse an “active participant” in the qualified plan?
|
|
55
|
- Saver’s Credit for Lower Income – 2008 Limits
Saver’s tax credit rates for up to $2,000 of contributions based
on AGI are as follows:
|
|
56
|
- Example
His/her maximum 2008 and 2009 SIMPLE is:
2008 2009
- 1. Deferral $10,500 $11,500
2. Catch up Deferral $2,500 $2,500
3. Employer Match $9,000 $9,000
Total: $22,000
$23,000
|
|
57
|
- Eligibility - 2008 & 2009
|
|
58
|
|
|
59
|
|
|
60
|
|
|
61
|
|
|
62
|
|
|
63
|
|
|
64
|
|
|
65
|
|
Notes
