How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

How to Avoid IRS Fines for You and Your Clients | LifeHealthPro

Business Owners Getting Caught in Section 79 Trap

March 16, 2011

Premise

One doctor almost lost everything after being sold on a Section 79 as a vehicle
to obtain tax deductions. Those who sell these plans say the IRS is not
targeting them, but they are, and this doctor's story tells the tale.

Discussion

 In 2006 Doctor X found himself in what he thought was
the pleasant position of having a substantial amount of cash on hand that was
not essential to the operation of his practice. That comfortable feeling did
not last long. He quickly fell prey to a predatory insurance agent who sold him
on the idea of Section 79 scam as a vehicle to obtain tax deductions. Of course
what really interested the insurance agent was the funding vehicle, a large
life insurance contract with American General as the insurance carrier, which
just happened to net the agent a large commission.

Unfortunately, the large, questionable tax deductions
claimed by Doctor X indeed attracted the attention of the IRS. As a result of
their audit, the IRS not only disallowed all of the tax deductions, but also
imposed back taxes, an array of penalties, and interest, turning the doctor’s
anticipated investment vehicle into something that could cost him everything he
was saving and more. As if that weren’t bad enough, even that Draconian action
was not the end of the story.

None of his so-called financial advisors had told Doctor X
about IRC Section 6707A. Under this section of the Code, huge fines can be
imposed on those who fail to inform the Service about participation in listed
or reportable transactions, or transactions substantially similar to listed
transactions. Loosely defined, a reportable transaction is any transaction that
has the potential for tax avoidance or evasion. Since he had no knowledge of
this requirement, the doctor did not make the proper filings under Section
6707A, and is now also being threatened with monstrous fines for that failure
to submit the proper forms in the proper format.

Although these issues had the potential for great disaster
and great financial loss for this doctor, all the anxiety and stress he has
been suffering over this matter may soon have a happier ending than he expected
at its onset because he had the sense to contact us for help, perhaps just in
the nick of time. As a result of putting experts with a great deal of
experience on his case, he now stands an excellent chance of having at least
some of the penalties from the original audit abated. He will probably be able
to recover the money that he sank into that large American General life
insurance contract as well. Sometimes a properly worded letter to the insurance
company is all it takes. Last, but certainly not least, Doctor X also has an
excellent chance of avoiding the large Section 6707A penalties, as our experts
in the art of filing late without paying fines are currently at work on that as
well.