The Team Approach to Tax, Financial and Estate Planning

by Lance Wallach

CPAs are the best and most qualified professionals when it comes to serving their clients needs, but they need to know when and how to coordinate with other experts.

Over the last twenty years we have worked with thousands of practitioners who have decided to add financial services to their practices. They do it for a variety of reasons, but the most common are as follows:

*They don’t want to refer their client elsewhere when they request financial services.

* They want to remain competitive.

*They want to diversify and increase their revenue as opposed to depending solely on tax and accounting revenue.

While helping these professionals add planning and investment services to their core offerings, we have found that they achieve four main benefits after doing so:

1. They are more satisfied with their work.

2. Their clients are more satisfied because they can work with someone they trust to meet financial goals.

3. Their clients give them more referrals.

4. Their incomes increase.

We believe that CPAs are the most appropriate–and perhaps the only–professionals who can provide comprehensive financial services to clients because they understand their clients’ tax and financial situations. Their clients trust these practitioners to provide professional advice that is in their best interest. In fact, we believe that tax professionals have an obligation and responsibility to advise their clients, and clients expect their professionals to advise them in these important areas.

With a combination of never-ending tax reform, the Tax Code’s significant and complex changes, and the market volatility we’ve experienced over the past few years, clients need guidance more than ever. Practitioners who provide financial planning and investment advisory services are in a position to advise and assist their clients with these issues.

Practitioners just starting out in this arena may not possess the myriad skill sets and substantive knowledge required to embark on new business ventures.

CPAs who don’t have all of the necessary talent in-house may find it easier to associate themselves with strategic “partners” who can provide the proper skill sets, training, technology, support and turnkey solutions in their specialized disciplines and niches, to help identify and meet their clients’ financial goals.

Adapted from “The Team Approach to Tax, Financial & Estate Planning,” edited by Lance Wallach, with chapters by Katharine Gratwick Baker, Fredda Herz Brown, Dr. Stanly J. Feldman, Ira Kaplan, Joseph W. Maczuga, Roger E. Nauheimer, Roger C. Ochs, Matthew J. O’Connor, Richard Preston, Steve Riley, Carl Lloyd Sheeler, Peter Spero, Paul J. Williams, and Roger M. Winsby. Product 017235.


Who Should Engage in Asset Protection?

Asset protection is a legal method of reducing your exposure to various types of risks by placing assets into various protected structures. In addition, these structures are typically organized in a manner to minimize the negative impact of a particular event. For example, did you ever wonder why both Pepsi and Coca-Cola have bottling divisions? It minimizes liability. If there is a problem with the physical product, the bottling division will be the target of litigation. However, the intellectual property is owned by a separate structure keeping out of the defendant’s chair if the bottling division is sued. However, all businesses should consider their actual structure from the perspective of being potential litigation, which is the essence of asset protection.

In general, there are two negative situations asset protection seeks to minimize. The first is bankruptcy. Here, planners work with the bankruptcy code to help clients survive bankruptcy. However, it’s important to realize there is only so much a planner can do in this area. The bankruptcy code exemptions are very clear — and also fairly limited. The second negative event planners work at minimizing is litigation. Here we have far more flexibility (so long as there are no fraudulent transfer issues). By using various structures, it is possible to greatly reduce the negative impact of litigation. Other events that are considered in the plan are divorce (both of the client and the client’s children) death (but this falls more under estate planning) and incapacitation. 

It’s also important to understand what asset protection isn’t. Asset protection cannot create a bullet proof strategy that is unassailable in all situations – and don’t let anyone tell you differently. The most striking example is bankruptcy; as mentioned above, the bankruptcy exemptions are very clear and very narrow; anything that falls outside them is swept up in the bankruptcy estate to pay creditors. In addition, if a person does not maintain the plan, trouble can emerge. For example, a person that forms a corporation that does not keep up with corporate formalities could have the court “pierce the corporate veil,” meaning the person will become personally liable for the claim. 

Who Should Engage in Asset Protection?

All businesses should have an attorney who specializes in asset protection look at the overall business structure at least once every few years to make sure their overall structure provides maximum protection. In addition, all high net worth individuals (people with at least $1 million in net worth) should have a plan in place, as their wealth is a natural litigation target. There are also several professions that naturally benefit from asset protection planning. Doctors lead the pack, followed closely by other licensed professionals (accountants, lawyers and engineers etc..).

Lance Wallach
68 Keswick Lane
Plainview, NY 11803
Ph.: (516)938-5007
Fax: (516)938-6330

National Society of Accountants Speaker of The Year

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.

Get a $200,000 IRS Fine and Have Your Client Sue You

By Lance Wallach

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, almost all the plans were noncompliant, even though insurance companies vetted them and encouraged their agents to sell them. This fostered an environment that led to numerous IRS crackdowns, disallowing tax deductions, and spurned clients to sue their insurance agents and others.

The result has been thousands of audits and an IRS task force seeking out tax-shelter promotions. In addition, the IRS has been auditing most 412(i) defined benefit retirement plans and all 419 welfare benefit plans — plans offered by many insurance agents. For unknowing clients, the tax consequences are enormous. Yet for their professional insurance advisors, the liability may be equally extreme. If an insurance professional sells one of these plans, and the client takes a tax deduction on that plan the IRS now considers as abusive, to be a listed transaction or substantially similar to such a transaction, the insurance agent may be called a “material advisor.” The fine for being found a material advisor is $200,000 if incorporated, or $100,000 if unincorporated.

Most insurance agents think that they can avoid the fine by filing Form 8918 with the IRS and informing on their clients. But, all of the Form 8918s we have seen have been filled out improperly. In our discussions with the IRS officials who wrote the regulations, the impression that we received was that if the form is filled out improperly, you are lying to the government. That is almost as bad as not filing the form. This has also been a problem with all the forms that we have reviewed for accountants and insurance agents. We have reviewed hundreds of forms, and not a single one has been filled out properly. One of the reasons for this may be that the promoter of the abusive plan sends the form with instructions to the accountant and insurance agent. These instructions tend to protect the promoter, but do not necessarily protect the insurance agent or accountant. So please be careful with this entire situation. We have received hundreds of phone calls from accountants and insurance professionals recently who are in this predicament. But, it is very difficult to help them after the fact.

Recently, there has been an explosion in the marketing of a financial product called “captive insurance.” These so-called “captives” are typically small insurance companies designed to insure the risks of an individual business under IRS Code Section 831(b). When properly designed, a business can make tax-deductible premium payments to a related party insurance company. Depending on circumstances, underwriting profits, if any, can be paid out to the owners as dividends, and profits from liquidation of the company may be taxed as capital gains.

While captives can be a great cost-saving tool, they also are expensive to build and manage. Also, captives are allowed to garner tax benefits because they operate as real insurance companies. Advisors and business owners who misuse captives or market them as estate planning tools, asset protection vehicles, for tax deferral purposes or to obtain other benefits not related to the true business purpose of an insurance company face grave regulatory and tax consequences.

A recent concern is the integration of small captives with life insurance policies. Small captives, under Section 831(b), have no statutory authority to deduct life premiums. Also, if a small captive uses life insurance as an investment, the cash value of the life policy can be taxable at corporate rates, and then will be taxable again when distributed. The consequence of this double taxation is to devastate the effectiveness of the life insurance, and it extends serious liability to any accountant who recommends the plan or even signs the tax return of the business that pays premiums to the captive.

The IRS is aware that several large insurance companies are promoting their life insurance policies as investments with small captives. The outcome looks eerily like that of the 419 and 412(i) plans mentioned above.

Remember, if something looks too good to be true, it usually is. There are safe and conservative ways to use captive insurance structures to lower costs and obtain benefits for businesses. And, some types of captive insurance products do have statutory protection for deducting life insurance premiums (although not 831(b) captives). Learning what works and is safe is the first step an accountant should take in helping his or her clients use these powerful, but highly technical insurance tools.

*Source: This article was first published in the January 2009 issue of California Broker magazine.

Lance Wallach, a member of the AICPA faculty of teaching professionals and an AICPA course developer, is a frequent and popular speaker on retirement plans, financial and estate planning, reducing health insurance costs and tax-oriented strategies at accounting and financial planning conventions. He does frequent expert witness work and assists insurance professionals, accountants and others in reviewing 8918 forms so they can avoid the IRS $200,000 penalty that applies to material advisors.

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 speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic Radio’s All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education’s CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, or visit and

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.