Over the past decade, business owners have been overwhelmed by a plethora of arrangements designed to reduce the cost of providing employee benefits and taxes, while simultaneously increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.

Some strategies, such as IRS Section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90 percent or more) fostered an environment that led to the marketing and selling of aggressive and noncompliant plans.

The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. In addition, the IRS has been auditing most 412(i) defined benefit retirement plans and all 419 welfare benefit plans. These plans are sold by many insurance agents. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be extreme. If an accountant signs a tax return with one of these plans on it, and if the IRS considers the plan an abusive, listed transaction or substantially similar to such a transaction, the accountant may be called a "material advisor." The fine for a material advisor is $200,000 if the accountant is incorporated or $100,000 if the accountant is not incorporated. There is also an IRS referral to the Office of Professional Responsibility. We have received hundreds of phone calls recently from accountants who are in this predicament. It is very difficult to help them after the fact. When I speak at national accounting conventions or AICPA events about these topics, most accountants in the audience do not understand what I am talking about, because they have never had this problem and are not aware of recent IRS enforcement activities. Unfortunately, within a few weeks after I speak at a convention, attendees will call me after reviewing their clients' tax returns. They often find one of these abusive plans on the return (these plans are very popular). If the plan is discovered before the IRS audit, many steps can be taken. If the IRS discovers the plan on audit, the results can be disastrous, both for your client and for you. The client gets fined $200,000 per year. For more information on this, see www.vebaplan.com and www.irs.gov.

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