I speak at numerous conventions and conferences, and attendees sometimes contact me for additional information about abusive tax shelters and Circular 230.Among other things, Circular 230 sets forth the requirements for disclosure of certain tax shelter transactions by tax professionals. Regulations also impose new obligations on tax professionals, and on taxpayers engaged in any kind of tax-avoidance transaction.
While it might not be the clear intent of Congress or even of the Internal Revenue Service to extend these disclosure obligations to include transactions at least arguably sanctioned by the Internal Revenue Code, there is enough ambiguity in the new regulations to cause many tax advisors and preparers to disclose transactions that may be doubtful.
The days of gambling on not being audited are over. Many tax preparers and advisors may hereafter take the position that any contemplated tax-avoidance transaction should be disclosed in order to minimize potential penalties.
The Jobs Act of 2004 added a new concept of reportable transactions in Tax Code Sections 6707 and 6707A, which now impose new penalties for failure to disclose certain reportable transactions. This new class of reportable transactions includes what are commonly known as "listed transactions" (as per IRS regulations).
Some examples of transactions that are listed and must be reported include 419(A)(F)(6) plans and certain types of 412(i) retirement plans. Not all 419 or 412(i) plans are listed transactions, but probably all 419(A)(F)(6) plans are.
When the various plans are sold and operated properly, they can be very advantageous. However, rather than brave the regulatory minefield, many accountants and advisors would rather simply just say, "No."
But it is not that simple, particularly for the client who will not accept this "No," and therefore must differentiate between a legitimate plan and one more likely to attract IRS scrutiny.
Lance Wallach speaks and writes about VEBAs, retirement plans and tax reduction strategies. For more information, visit www.vebaplan.com or call (516) 938-5007.
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