Q.1. What action has the US Department of Justice taken against the promoters of the Sea Nine VEBA?
A.1. The US Department of Justice (“DOJ”) has brought an action against Mr. Elliott and other defendants to prevent further sales and promotion of the Sea Nine VEBAs. One of the other defendants consented to the permanent injunction and, as part of his settlement, he provided a list of participants in the Sea Nine VEBAs.
Q.2. Will the result of providing the customer list to the government result in the opening of IRS audits?
A.2. Maybe. There is no way to know if the IRS will audit all of the Sea Nine participants. Previously, in auditing promoters of other 419 plans, the IRS has obtained customer lists and then subsequently audited some percentage of participating employers. In this case, we understand from court pleadings that the IRS previously audited a sampling of Sea Nine participants. In those audits, the IRS took the position that the Sea Nine VEBAs were both noncompliant with the tax code relating to multiple employer plans and also were listed transactions (see below). It would not be surprising if the IRS chooses to open audits of Sea Nine participants as a result of obtaining the customer list.
Q.3. If I am not currently under audit, what can I do to minimize my IRS exposure?
A.3. There are several actions you should consider immediately.
Terminate Participation in the Plan. If you haven’t done so already, you should consider terminating your participation in the Plan and requesting a complete distribution of benefits. There are both tax and legal ramifications of this action, so you should have legal counsel assistance for this action. Recognize Income. The IRS has informally recommended that taxpayers not under audit should consider amending their earliest open return to include the value of the policy and the cost of insurance in income. However, the IRS has also stated that amending back tax returns will not guarantee that a taxpayer will not be audited nor will it guarantee that the IRS won’t impose accuracy or listed transaction penalties. Another alternative is to include the value of the policy in income (together with the cost of insurance) for the year the plan
Q.1. What action has the US Department of Justice taken against the promoters of the Sea Nine VEBA?
ReplyDeleteA.1. The US Department of Justice (“DOJ”) has brought an action against Mr. Elliott and other defendants to prevent further sales and promotion of the Sea Nine VEBAs. One of the other defendants consented to the permanent injunction and, as part of his settlement, he provided a list of participants in the Sea Nine VEBAs.
Q.2. Will the result of providing the customer list to the government result in the opening of IRS audits?
A.2. Maybe. There is no way to know if the IRS will audit all of the Sea Nine participants. Previously, in auditing promoters of other 419 plans, the IRS has obtained customer lists and then subsequently audited some percentage of participating employers. In this case, we understand from court pleadings that the IRS previously audited a sampling of Sea Nine participants. In those audits, the IRS took the position that the Sea Nine VEBAs were both noncompliant with the tax code relating to multiple employer plans and also were listed transactions (see below). It would not be surprising if the IRS chooses to open audits of Sea Nine participants as a result of obtaining the customer list.
Q.3. If I am not currently under audit, what can I do to minimize my IRS exposure?
A.3. There are several actions you should consider immediately.
Terminate Participation in the Plan. If you haven’t done so already, you should consider terminating your participation in the Plan and requesting a complete distribution of benefits. There are both tax and legal ramifications of this action, so you should have legal counsel assistance for this action.
Recognize Income. The IRS has informally recommended that taxpayers not under audit should consider amending their earliest open return to include the value of the policy and the cost of insurance in income. However, the IRS has also stated that amending back tax returns will not guarantee that a taxpayer will not be audited nor will it guarantee that the IRS won’t impose accuracy or listed transaction penalties. Another alternative is to include the value of the policy in income (together with the cost of insurance) for the year the plan