Case 8:13-cv-01582-JLS-JPR Document 1 Filed 10/09/13 Page 1 of 43 Page ID #:1 . ,, nited States Attorney 'ANDRA R. BROWN Assistant United States Attorney Chief, Tax Division DARWIN THOMAS (SBN 80745) Assistant United States Attorney 'S'P Federal Building, Room 7211 <.} .... ~ 7 300 North Los Angeles Street Los Angeles, California 90012 8 Tel: (213) 894-2740; Fax: (213) 894-0115 9 Email: darwin.thomas@usdoj.gov BRIAN H. CORCORAN (DC Bar No. 456976) 10 Trial Attorney, Tax Division 11 U.S. Department of Justice Post Office Box 7238 12 Washington, D.C. 20044 13 Tel: (202) 353-7421; Fax (202) 514-6770 14 Email: Brian.H.Corcoran@usdoj .gov 15 Attorneys for the United States of America 16 17 18 19 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION 20 United States of America, 21 ' 22 Plaintiff, vs. COMPLAINT FOR PERMANENT INJUNCTION AND OTHER RELIEF 23 Kenneth Elliott d/b/a KAE Insurance Service~ Inc., Vista Barranca, Inc., 24 and KA~ Consulting· Sea Nine Associates, Inc., and Ramesh Sarva, 25 26 27 28 Defendants. __________________________ ) 1 10296991.1
Failing to File Form 8886 for VEBAs like Sea Nine VEBA create multiple penalties.
Taxpayers who participate in 419A(f)(6) multiple employer plans like the Sea Nine VEBA are often very discouraged to find the IRS applying multiple penalties for the failure to file a form that they had no reason to know was required. The form, IRS Form 8886 is required for all taxpayers who participate in a listed transaction such as a multiple employer welfare benefit plan (or 419 plan). The following example illustrates the penalties that can apply.
Assume we have an S corporation taxpayer who deducted $100,000 to a multiple employer 419 VEBA for years 2008, 2009 and 2010. The IRS audits the taxpayer and disallows the $100,000 deduction. In most cases, the IRS will provide for the adjustment at the individual 1040 level and other than some interest, the taxpayer will be in a position similar to if the transaction had not occurred. If, however, the taxpayer was not told to file Form 8886 for every year of participation and in fact did not file, the IRS asserts the following additional penalties:
A $10,000 penalty at the S Corporation level for years 2008 – 2010 for the failure to file Form 8886. Total Penalty = $30,000. See Code Section 6707A. A penalty at the individual level of 75% of the tax benefit for years 2008-2010 for the failure to file Form 8886. This translates into a penalty of $26,250 for each year. Total Penalty = $78,750. See Code Section 6707A. An accuracy related penalty of 30% of the income tax adjustment for years 2008-2010. The worst part of this penalty is that if the taxpayer exercised due diligence and relied on an outside advisor, this penalty would normally be 20% of the tax and could be waived. However, because the Form 8886 was not filed, the penalty is 30% and cannot be waived. Total Penalty = $31,500. See Code Section 6662A. Grand Total of all Penalties = $140,250 (nearly 50% of the total investment)! Taxpayers facing these penalties should seek representation with respect to defending their case before the IRS and considering responsibility for the penalty by other parties.
We have received numerous calls from taxpayers who are under audit with the IRS with respect to their participation in the Sea Nine VEBA, a 419A(f)(6) multiple employer welfare benefit plan. The IRS audits are generally managed in one of several upstate New York offices of the IRS.
Case 8:13-cv-01582-JLS-JPR Document 1 Filed 10/09/13 Page 1 of 43 Page ID #:1
ReplyDelete. ,,
nited States Attorney
'ANDRA R. BROWN
Assistant United States Attorney
Chief, Tax Division
DARWIN THOMAS (SBN 80745)
Assistant United States Attorney
'S'P Federal Building, Room 7211 <.} .... ~ 7 300 North Los Angeles Street
Los Angeles, California 90012
8 Tel: (213) 894-2740; Fax: (213) 894-0115
9 Email: darwin.thomas@usdoj.gov
BRIAN H. CORCORAN (DC Bar No. 456976)
10 Trial Attorney, Tax Division
11 U.S. Department of Justice
Post Office Box 7238
12 Washington, D.C. 20044
13 Tel: (202) 353-7421; Fax (202) 514-6770
14 Email: Brian.H.Corcoran@usdoj .gov
15 Attorneys for the United States of America
16
17
18
19
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
20 United States of America,
21
' 22
Plaintiff,
vs.
COMPLAINT FOR PERMANENT
INJUNCTION AND OTHER
RELIEF
23 Kenneth Elliott d/b/a KAE Insurance Service~ Inc., Vista Barranca, Inc.,
24 and KA~ Consulting· Sea Nine
Associates, Inc., and Ramesh Sarva,
25
26
27
28
Defendants. __________________________ )
1
10296991.1
Failing to File Form 8886 for VEBAs like Sea Nine VEBA create multiple penalties.
ReplyDeleteTaxpayers who participate in 419A(f)(6) multiple employer plans like the Sea Nine VEBA are often very discouraged to find the IRS applying multiple penalties for the failure to file a form that they had no reason to know was required. The form, IRS Form 8886 is required for all taxpayers who participate in a listed transaction such as a multiple employer welfare benefit plan (or 419 plan). The following example illustrates the penalties that can apply.
Assume we have an S corporation taxpayer who deducted $100,000 to a multiple employer 419 VEBA for years 2008, 2009 and 2010. The IRS audits the taxpayer and disallows the $100,000 deduction. In most cases, the IRS will provide for the adjustment at the individual 1040 level and other than some interest, the taxpayer will be in a position similar to if the transaction had not occurred. If, however, the taxpayer was not told to file Form 8886 for every year of participation and in fact did not file, the IRS asserts the following additional penalties:
A $10,000 penalty at the S Corporation level for years 2008 – 2010 for the failure to file Form 8886. Total Penalty = $30,000. See Code Section 6707A.
A penalty at the individual level of 75% of the tax benefit for years 2008-2010 for the failure to file Form 8886. This translates into a penalty of $26,250 for each year. Total Penalty = $78,750. See Code Section 6707A.
An accuracy related penalty of 30% of the income tax adjustment for years 2008-2010. The worst part of this penalty is that if the taxpayer exercised due diligence and relied on an outside advisor, this penalty would normally be 20% of the tax and could be waived. However, because the Form 8886 was not filed, the penalty is 30% and cannot be waived. Total Penalty = $31,500. See Code Section 6662A.
Grand Total of all Penalties = $140,250 (nearly 50% of the total investment)!
Taxpayers facing these penalties should seek representation with respect to defending their case before the IRS and considering responsibility for the penalty by other parties.
Sea Nine VEBAs under attack by IRS
ReplyDeleteWe have received numerous calls from taxpayers who are under audit with the IRS with respect to their participation in the Sea Nine VEBA, a 419A(f)(6) multiple employer welfare benefit plan. The IRS audits are generally managed in one of several upstate New York offices of the IRS.