October 2010
By Lance Wallach

The bill reducing fines for improperly or not filing under 6707A has passed. That sigh of relief you
heard last week might have come from people participating in the plans named above, or anything
seeking tax relief that is similar to them – what the IRS calls a listed transaction. People think that
Congress bailed them out of trouble for participation in such transactions, and that the excessive fines
that were being imposed are now a thing of the past. While the situation is certainly better than it was
for some people, and while I do not want to rain on anyone’s parade, you are still in Disasterville, and
the next to last bus out just left.

Consider this: The new legislation calls for MINIMUM penalties of $5,000 per person per year, and
$10,000 for a business. That is $15,000 per year if you are incorporated. So, if you have been in a plan
since, say, 2003, you are looking at fines in excess of $100,000 before you even start to talk about how
much of a tax benefit there has been.

Further fines would be seventy-five percent of the tax benefit derived from participation in the
transaction. These are also applied each year. The point is that you are looking at fines, in all likelihood,
to some degree in the six-figure range.

You can possibly still avoid all this by properly filing form 8886 IMMEDIATELY with the IRS. Time
is especially of the essence now. You MUST file before you are assessed the penalty. For months the
Service has been holding off on actually collecting from people that they assessed because they did not
know what Congress was going to come up with. But now they do know, so they are going to move
aggressively to collection with people they have already assessed. There is no reason not to now. This
is especially true because the new legislation still does not provide for a right of appeal or judicial
review. The Service is still judge, jury, and executioner. Its word is absolute as far as determining what
is a listed transaction.

So you have to file form 8886 FAST; like NOW.  But you also have to file it RIGHT. The Service
treats forms that are incorrectly filed as if they were never filed. You get this fine for filing incorrectly
or for not filing at all. The Statute of Limitations does not begin unless you properly file. That means
IRS can come back to get you any time in the future unless you file properly.
You must take care as to WHO prepares the form. Most accountants have no idea how to file these
forms late. They will simply follow the filing instructions, which presume a timely filing. If you did not
file in a timely manner, you need someone who knows how to file the forms late without incurring the
penalty. This is an art. I know probably the only two people who have filed dozens of forms late, or
more, without anyone being penalized. They learned how by dozens of conversations with IRS
personnel. I can put you in touch with either or both of them, and they can help you.

I am sure that you agree that you may still be in trouble. If you thought that you were not, I am sorry if
I brought you bad news. The good news is better because you can still get out of it. All you have to do
is call.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of
teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and
abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He gives expert witness
testimony and his side has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or
visit www.taxadvisorexperts.org or www.taxaudit419.com.

The information provided herein is not intended as legal, accounting, financial or any other type of
advice for any specific individual or other entity. You should contact an appropriate professional for
any such advice
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Mutual 412i, Transamerica 412i,Prudential 412i, Kansas City Life 412i, Mass Mutual412i, Guardian 412i, Amerus 412i,
The New Law Guarantees A Substantial Fine
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