Expert Witness and 419 Plans Litigation - IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS
Expert Witness and 419 Plans Litigation - IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS
es of "Lance Wallach"ts to “carve out” a select employee or a select group of employees to receive additional life insurance protection. These select employees are carved out of the Section 79 plan on a discriminatory basis. As with any executive bonus plan, the employer may deduct the premiums as compensation.
ReplyDeleteHow does it work?
The executive bonus is easy to implement. The employee purchases and owns life insurance on his or her own life. The employer pays the premiums to the insurance company. The premiums are fully deductible to the employer as compensation to the employee under IRC Section 162. The premiums are taxable income to the employee, and the employee owns the life insurance policy including policy values. As the policy values grow, the employee benefits.
It has been my experience that some employers choose to pay not only the premium amount, but also the employees’ tax on the premium amount. This second “bonus” pays the employee’s income tax on the first premium “bonus” and creates a “double bonus plan.” The employer should consider a formal resolution or document the corporate minutes to show that premium payments are intended as compensation. The employer and employee may also enter into a modification of ownership rights agreement. Even though the employee is the owner of the policy, a modification of ownership rights agreement may limit the control the employee has over the use of policy values. The employer may require that the employee is unable to access policy values for loans or withdrawals without written consent of the employer.
This article forgot to discuss that the IRS audits and fines people in section 79 plans.
The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.
Content copyright 2014.