Listed Transactions

In recent years, some section 412(i) plans have been funded with life insurance using face amounts in excess of the maximum death benefit a qualified plan is permitted to pay.  Ideally, the plan should limit the proceeds that could be paid as a death benefit in the event of a participant’s death.  Excess amounts would revert to the plan.  Effective February 13, 2004, the purchase of excessive life insurance in any plan is considered a listed transaction if the face amount of the insurance exceeds the amount that can be issued by $100,000 or more and the employer has deducted the premiums for the insurance.

By itself, a 412(i) plan is not a listed transaction; however, the IRS has a task force auditing 412(i) plans.

An employer has not engaged in a listed transaction simply because it is a 412(i) plan.
Just because a 412(i) plan was audited and sanctioned for certain items, does not necessarily mean the plan engaged in a listed transaction.  Some 412(i) plans have been audited and sanctioned for issues not related to listed transactions.

Companies should carefully evaluate proposed investments in plans such as the Benistar plan.  The claimed deductions will not be available and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34.  In addition, under IRC 6707A, IRS fines participants a large amount of money for not properly disclosing their participation in listed, reportable, or similar transactions; an issue that was not before the Tax Court in either Curico or McGehee.  The disclosure needs to be made for every year the participant is in a plan.  The forms need to be filed properly even for years that no contributions are made.  I have received numerous calls from participants who did disclose and still got fined because the forms were not filled in properly.  A plan administrator told me that he helps hundreds of his participants file forms, and they all still received very large IRS fines for not filling in the forms properly.

K&K Tax Group is a national tax resolution firm comprised of experienced tax attorneys, enrolled agents and tax relief professionals practicing as Tax Resolution Specialists certified by the American Society of Tax Problem Solvers (ASTPS). This is what makes us uniquely qualified to successfully solve IRS problems day in and day out. Our licensed professionals (every tax attorney, CPA and enrolled agent) must meet educational, experience and examination requirements prescribed by the ASTPS, a national, not-for-profit professional organization.

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.

K&K Tax Group

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