Doctors hate to pay taxes. Insurance agents love to sell insurance. Combine the two with a tax deduction the IRS offers to encourage employers to offer some life insurance to their employees and you end up with situations like Section 79 plans.
The Pitch
The basic pitch behind section 79 plans is the opportunity to buy cash value life insurance using pre-tax dollars. The returns on cash value life insurance tend to be low, but if you could buy them with pre-tax dollars (and of course borrow money from them tax-free but not interest free) the after-tax returns start to look a lot more attractive. The insurance agents sells it like this:
How would you like a retirement plan where you get:
1) An upfront tax deduction
2) Tax-protected growth,
3) Tax-free income in retirement, and
4) Don't have to pay for an employee match into the plan?
Sounds pretty good, right? The agents who sell this stuff describe it as “an awful lot like a combination of a traditional IRA and a Roth IRA? How about a supercharged Roth IRA? Too good to be true? It may seem so, but it is an insurance plan that has been around for years.” I wish it were that good. Unfortunately, it is too good to be true, but like usual, the devil is in the details.
How It Works
Section 79 is the section of IRS Code that encourages/allows employers to offer life insurance (along with health insurance) to their employees. The tax deduction for it is in section 162 of the code. The rules are that you can deduct the premium cost for $50,000 of group life insurance for each employee. That's cool, right? And what most companies do with that is offer $50,000 of free term insurance to their employees. It makes the employees think the employer cares about them, even though they probably need 10, 20, or perhaps 50 times as much insurance. The benefit is much, much cheaper than offering health insurance to the employees. In fact, premiums might only be ~$100 per person per year. (That's what a 30 year old healthy male can buy $50K in 5 year level term insurance for.) So the employer gets to offer the employee a tiny amount of life insurance and write it off as a business expense. Sometimes, the employer will even let the employee buy a little bit more of the insurance, but any amount above and beyond the premiums due on the first $50K is fully taxable to the employee.
However, there is no rule that says the insurance offered has to be term life insurance. That's where the insurance agents figure there's an opportunity to sell some cash value life insurance. Of course, this is also where all the complexity comes in. A general truism in personal finance is that the more complex the product, the better it is for the guy selling it and the worse it is for the guy buying it. So when things start getting complicated, that's the time to really beware. Is there a catch? Of course there is. In fact, there are six. We'll go through each of them
The Deduction and Paying Taxes on Phantom Income
So if the employer just buys all the employees a $50K term policy, the entire cost of that is probably deductible. If he decides to instead offer a permanent life insurance policy, the entire cost is no longer deductible. But, if properly designed, it's possible that 20-40% of the cost of the premium can be deductible to the employee (the entire premium is deductible to the corporation.) That's catch # 1. Remember the insurance agent offered the opportunity to buy whole life insurance with pre-tax dollars. It's pre-tax to the corporation, but not to you as the employee. You only get to buy 20-40% of the premium with pre-tax dollars. The rest has to be bought with post-tax dollars.
To make matters worse, you have to pay the taxes on that benefit from other income because this income to you is “phantom income” (you never saw it.) So the employer gives you this policy (let's say $100K premium per year), then you have to pay taxes on $60-80K of it (probably $20K or so) without ever actually getting the $100K with which to pay the taxes. It's a bit like the phantom income issue with TIPS in a taxable account that way. That's catch # 2.
Scaring the Employees
Just like with a 401(k) or other more typical employer-offered retirement plan, you can't discriminate against your employees. If you want to buy yourself a whole life policy, you have to offer it to your employees. As you can imagine, that will get really expensive. However, the employees can choose not to participate. Why would they choose not to? Well, you have to scare them into not taking it, because as much as I'm not a fan of whole life insurance, if someone else is going to pay all the premiums, I'll sure as heck take the policy.
So how do employers and their “partners in crime” insurance agents do it? They blow up the tax on phantom income issue into a huge bogey-man. They say, you can either have this free $50K term insurance policy, or you can have this other policy, but then you have to pay a big tax bill on it each year. The financially unsophisticated employees will then choose the term policy despite the fact that it's in their best interest to take the same policy as the owner, the whole life one. So if you're going to implement this plan, either you or your agent is going to have to mislead your employees in order for you to get the intended benefit out of the plan. Roccy DeFrancesco demonstrated the numbers behind this concept. He estimated that for a doctor with four employees, if he could sucker all four of them into just taking the $50K in term, his cost for that would be $475 per year. If, however, they wised up and opted for the same policy as the doctor, that same benefit would cost the doctor $27,594 per year. In short, if you actually have to buy this benefit for all of the employees, the whole thing is a non-starter. Having to lie to your employees is catch # 3.
My ten year old canyoneer with her mother
By the way, you also have to use a C Corp structure to do this. An S Corp (unless you own less than 2% of it) or LLC (unless opting to file taxes as a C Corp), far more common structures for physician practices, aren't allow to do it. That's catch # 4.
You Have To Use a Bad Policy
Another interesting downside of these plans is what it takes to get that full 40% deduction. It turns out the worse the whole life policy, the bigger the deduction. So what you gain on the tax side, you lose on the investment side. I've run numbers before on a good whole life policy, and found that if held for many decades, you can get a guaranteed return of 2% and a projected return of 5% for a policy bought on a young healthy doc. Those numbers will be much lower for a policy that actually qualifies for that full 40% deduction. A better designed whole life policy might only qualify to have 5 or 10% of the cost of the premiums deducted, rather than 40%.
In fact, the polices are so bad, that most who sell them actually encourage you to get rid of them as soon as possible, which is after 5 years, by exchanging the policy into a better policy. It doesn't hurt that the new policy also generates a new commission for the agent. However, if you actually run the numbers, you would have been better off just using your post-tax dollars (instead of 60% post-tax and 40% pre-tax dollars) to buy the good policy in the first place, not to mention investing in a better investment than cash value life insurance. Not to mention avoiding the additional costs and hassles of becoming a C Corp. Having to use a bad policy is catch # 5.
The Reportable Transactions Issue
Section 79 plans “reportable transactions” to the IRS, or they may not, depending on who you ask. But if they are, and you don't report it, there is a substantial penalty and fines associated with it. I imagine a plan like this also increases the likelihood of audit of the corporation. As if you didn't have enough other reasons to avoid them. These issues with the IRS are catch # 6.
In conclusion, if you actually could buy permanent life insurance using pre-tax dollars for the entire premium, it would do a lot toward improving its inferior returns. However, a section 79 plan doesn't allow you to do that, and whole life insurance isn't like a Roth IRA, much less a supercharged one. Instead, a section 79 plan is another way for agents to earn huge commissions on cash value life insurance by capitalizing on your dislike of taxes while requiring you to deceive your employees. Avoid these plans and those who sell them like Ebola.
What do you think? Do you have a Section 79 plan? Have you been pitched one? Share your experience in the comments below.
These plans are to be pitched to very high end physicians, usually making more than $500-600k. I have sat in on the presentations and the sales reps for the company think most doctors make this level of income. If a doctor has 4 employees, and needs to put $100k per year away for retirement, a defined benefit plan would probably be better and that is 100% tax deductible today. For the doctor making this level of income a DB plan may also be a good way to create employee loyalty when you add a 5 year cliff vesting schedule.
The IRS has Turned your Accountant into their Policeman
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Every business owner thinks he pays too much in taxes, and in reality, most actually do. These days your accountant has to “play it safe”. This is not reducing your tax bill.
Many times a tax preparer’s work on a typical return is subject to ‘+interpretations+’ of the tax code. New legislation may force preparers who hope to lower a client’s tax bill to be less aggressive with respect to these interpretations, or else they may risk substantially increased penalties.
Furthermore, if a tax preparer’s client insists on an aggressive deduction, the preparer may include a form explaining the circumstances. This could eliminate the potential preparer penalty, but it is a certain red flag for the IRS.
This should anger taxpayers who feel strongly about particular deductions. What’s more, these penalties do not apply to taxpayers preparing their own returns. This could prompt a taxpayer to tell a preparer: “who needs you; I’ll do it myself”. The remainder of this article explains why your accountant is reluctant to be aggressive anymore, and is less likely to give you the benefit of the doubt on tax deductions.
It amazes me that such things exist!
My daughter will have a job next year with a large corporation that offers the “opportunity” to buy life insurance through the company. I don’t know all the details yet. After reading your post, what do we look for to decide if it is a good deal for her? If the premiums are paid with pre-tax dollars does that mean the benefit becomes taxable to the beneficiaries? My understanding was that one of the advantages of buying term life with post tax dollars was that the death benefit was not taxable to the beneficiary. My husband operates his practice as a C Corp but does not offer life insurance through the practice.
No, life insurance death benefit proceeds are always tax-free as far as I know. They just limit how much can be bought with pre-tax dollars. I’d just compare the deal to what you can buy a similar life insurance policy for on the open market. Usually employers only offer $50K or 2X salary or some other relatively low number. Often it’s a “free” benefit though, so you might as well take it.
You are confusing life insurance benefits with disability insurance benefits.
Thanks. Realized that later when I asked my husband.
That’s not true. It isn’t always tax free. If purchased within a qualified plan for instance.
Sounds like yet another great reason not to buy life insurance inside a qualified plan.
Is this the same as the restricted property trust that I’ve seen a few people/insurance agents offer/recommend?
I’ve never heard it called that.
Hey Jim,
Just got pitched this insurance policy last week. It sounded too good to be true, which is why I googled the section 79 terms. A colleague told me you had written about it, so I immediately looked it up. Just like you said, was told that it’s like a super roth-IRA, and that once I invested, I would get a 40% write off, and my earnings would grow tax-free if I left the money in for 10 years. Sounded all great, and couldn’t find the catch…now I know there’s 6 of em. Thanks for all the advice.
You’re welcome. Many of my posts are written specifically as a “just in time” source of information that will pop up on Google. Not many regular readers were interested in this post when it ran, but I knew it would be read more and more as the years go by.
You should look into the restricted property trust (RPT). It is one of the newest “waves” of tax deductible life insurance, it falls under IRS section 419, 409(a), and section 83… This is starting to be pitched to a number of physicians and has very little track record around IRS audits, I believe the private letter ruling is from 2012… Section 79 plans have been around much longer.. and of course the issues with section 419(i) and (e) plans with IRS audits, It seems small agency carrier insurance agents just keep trying to find more ways to sell large commission whole life
Always a new way to sell isn’t there?
http://www.beckersspine.com/orthopedic-spine-practices-improving-profits/item/9973-long-term-asset-accumulation-strategy-restricted-property-trust.html
I love that if you don’t make a payment, all your cash value goes to a charity!
Failure to make the annual contribution causes both the whole life policy to lapse and the surrender proceeds within the trust to be given to a pre-selected charity. This risk of forfeiture is a critical plan provision and causes many plan participants to scale back their planned contributions.
Look out if you have a section 79 plan. They are aggressively being audited. There is a task force out on this and it is not state IRS agencies but from the central office and thus asking for an appeal is usually denied. They aren’t really an audit either. They gather your information, they send you a huge 35 page letter illustrating why the plan is discriminatory and lacked a “meaningful” discussion with employees no matter what was presented to them. You will be offered a settlement or take it to court which will cost a pretty penny. Most practitioners are just settling. Now practitioners are deciding if the plan itself was discriminatory by design. Since 2012 the IRS has been sniffing around with these policies, and in 2015 they are being very aggressive. Many companies that sold these plans are backing off until a final decision is made but it doesn’t look good for section 79 plans. Thus, if they were designed in a flawed and discriminatory fashion, the companies selling them may be at fault. Hopefully these companies have good errors and omission insurance.
Having spent almost 40 years in the insurance, investment, financial, estate and business planning market, I read with interest your article on the aspects of insurance planning which includes the tax application for Section 79. I am not a doctor. My son however is (along with several hundred physician clients of various disciplines) so I have something greater than a passing familiarity with working in the medical community on the financial planning side. The article that this comment is addressed to is unfortunately riddled with numerous technical, legal and ethical errors; many errors. For the record I am also a former insurance industry compliance officer. An analytical article on the merits of any tax inclusive planning, which this article purports to be, referencing Section 79 of the tax code as an example, should not be peppered with assumptions, vague personal innuendo or other non-objective comments and yet the article is loaded with them. In today’s consumer oversight market there are few ‘bad’ insurance policies. There are however ‘bad’ applications to those policies when used incorrectly outside of a clients stated goals. This is the reason due diligence should always be a part of the planning equation. Secondly, when entering any financially oriented arena where a physician is on unfamiliar ground it is best to refer back to ones licensed tax advisor, not an internet blog, no matter how well intentioned. I notice that you did not mention this in your article. A CPA, enrolled agent or a tax attorney (differentiated from a regular attorney by the J.D., L.LM. designation on their business card – LLM = A Masters certificate in taxation recognized by the IRS). Additionally, the use of other blog writer’s comments in your article is not a particularly prudent activity. Your references to two particular people, self-anointed experts for lack of another term and found among your comments here and on another appended article are most unfortunate. I say unfortunate since these two pseudo-experts have in fact no known demonstrable expertise in this insurance area whatsoever. How do we know this? They have as much as admitted so in their own past statements for starters. They claim to have never sold or proposed one to any client nor are they trained to do so. They do however have a history of violating/flaunting regulatory authority for published errors, misquotations of the U.S. tax code and a host of other related technical matters that make reliance on their advice a high risk event. One of them for example is known to have violated FINRA (Financial Industry Regulatory Authority) rules, the Securities and Exchange Act of 1934 (still in force), the Investment Advisor Act of 1940 (still in force) and the FINRA Communication Suitability rules. In the case of one of these people, almost every time a negative competing article is blogged by him he manages to also include products that he recommends the reader buy from him (and is paid on) instead. This kind of activity in consumer law is referred to as ‘bait and switch.’ The legal community refers to it as fraud. The SEC calls it a financial crime.
You claim in your article that this is some kind of restricted transaction that requires a special disclosure to the IRS. Again you are wrong.
Section 79 of the tax code is not nor has it ever been a ‘restricted or listed’ transaction nor is it restrictive in any other format. There is no special reporting procedure nor is one expected, anticipated or advised by tax professionals. Repeating this mantra in your article does not make it so. The IRS as of this writing has not issued any notices to tax professionals supporting your many patently incorrect statements to the contrary. Even a major national CPA association disagrees with your conclusions and has itself published an objective review of the plans tax application; contrary to your advice. This embarrassment on your part could have been avoided by simply going to “IRS.gov,” type in “Listed Transactions” and taking a look at the code section for yourself. What you claim is not there.
Another issue is the technical competency difference between the licensed tax professionals and you. They are covered by ‘errors and omissions liability insurance’ to provide such advice. You are not. When the U.S. Tax Code is contrary to YOUR conclusions then YOU are the one with the problem. Providing tax and/or financial planning advice in your financial blog which conveys factually incorrect information and data is a disservice to the readers, as are the casually overt and biased comments displayed by you in your article. Anyone reading it and assuming any level of accuracy associated with it should completely ignore its assumptions and conclusions. Again talk to your licensed tax advisor. As my son the doctor pointed out, if he treated/advised his patients on the same standard you adopted in arriving at the conclusions you published in this article, he would eventually end up in a lawsuit. He is the doctor by the way who brought it to my attention. After reviewing your article several times for its accuracy and competency, I can only characterize its content as poorly written and containing no research to which you can personally attest. At its worst it is a scam perpetrated upon the medical community in general and physicians specifically. I feel certain that you did not intend this. This article fails to meet the legal and moral obligations for conveying financial accuracy within the Federal and State(s) regulatory environment for national and state consumer protection laws. When subjected to current compliance standards and legal oversight the article is highly disingenuous and duplicitous. If the author of this article were subjected to federal and/or state tax, financial and/or insurance licensing provisions (for CPAs, enrolled agents, tax attorneys, insurance brokers and other licensed financial professionals) the highly inaccurate nature of this article would be grounds for license suspension, forfeiture, fines and potential jail time depending upon the depth of advice followed by someone in reliance to the article contained herein. Yes, people in this business do go to jail for harming the financial well-being of clientele for this kind of fraud. And it is a fraud! To the author of this article, please keep in mind that every state has a statute under which they can pursue financial damages and legal recourse to those who write and blog bad information upon which others may take financial action. If that action is a direct result of the advice rendered in a column such as this one, even a non-licensed person can be held legally responsible for financial losses incurred. Prosecution of this statute type on these grounds has been successfully undertaken in the past.
I understand the author is an ER/ED physician. I wish for you to know sir that for very personal reasons I happen to greatly admire all ER/ED board certified physicians for their dedication to saving human life in the most unpleasant circumstances in which they may occasionally find their work. Please avoid those things that will get you in trouble and seize with unbridled passion the knowledge that your life-saving skill in emergency medicine is a highly unique blessing. Regards, T. Forest
That button on the right side of the keyboard, usually labeled “enter” or “return” is very helpful to use when typing 1200 word comments. (By way of reference, the post itself was only 1500 comments.) If you’re going to write that much, you might as well point out exactly what you think is wrong with the post, rather than just saying “it’s wrong” in a dozen different ways. The only substantial thing you mentioned is about listed transactions. Suffice to say, there are some smart people who disagree with your interpretation. Whether you’re right or they’re right, it’s hard to say. But if there is this much disagreement on the topic, I see little reason for a doc to use the strategy.
The fun part about being a blogger and not a licensed financial professional is I really don’t give a rat’s behind about your compliance requirements. They don’t apply to me. No one is going to take my license away and send me to jail. I’m not going to “get in trouble.” Go ahead and try to get me in trouble. Call FINRA. Call the SEC. See how much they care about what I write. That’s amazingly freeing, because it gives me the ability to just call it like I see it. And I see Section 79 plans as a way to sell more unneeded cash value life insurance to docs. If you think it’s the cat’s meow and feel you’re a super expert on the concept, no one is stopping you from submitting a guest post about it. Here are the guidelines:
https://www.whitecoatinvestor.com/contact/guest-post-policy/
I’m curious why your son the doc brought this to your attention. Maybe he’s starting to have doubts about the Section 79 Plan you sold him?
Hey T. Forest! Will you sell me a plan utilizing Section 79? Yeah right. [Ad hominem attack deleted.] I hope that you don’t sell another one of these plans to another unsuspecting doc.
[Come on, you know you can’t post comments like that here. Even in response to life insurance agents.-ed]
🙂
BCB
Good one, it seems as though T Frost is on a completely different intellectual level than you. Leave it to the professionals and stop complaining. Taking this time to chat about something docs obviously are clueless about is not a great use of your time. There are suck people out there find a cure! You are making it sound as though trusted Financial Planners are car salesmen for god sake
The point of my response was aimed at this articles readers and their money. I am not interested in getting you in trouble doctor, I am interested in others who may follow your advice getting in trouble. It is after all their money, not yours. As you stated, “you don’t give a rats ass,” and “Suffice to say, there are some smart people who disagree with your (my) interpretation.” I don’t have an interpretation doctor. The tax code itself is the defining authority and it does not agree with your assessment nor do I on that basis. I am simply pointing this out to your readers. When conflicting opinions arise submitting to another person’s bias is a foolish endeavor. Seek professional guidance from a CPA, enrolled agent or tax attorney. Notice that I did not mention ‘insurance agent’. No where in your comments do you advise this course of action. Are you afraid doctor that other physicians will find out that your article is riddled with derogative hyperbole and clearly false information confirmed by the tax code. This article is clearly an opinion piece.. So since you brought up ‘details’ in regards to your article let’s look at a few them. YOUR ARTICLE: “So the employer gets to offer the employee a tiny amount of life insurance and write it off as a business expense. Sometimes, the employer will even let the employee buy a little bit more of the insurance, but any amount above and beyond the premiums due on the first $50K is fully taxable to the employee.” REPLY: Completely incorrect characterization – the employee must be offered 4 different options 1-Non participation at the employees discretion 2- A Permanent insurance policy of an amount in excess of $50,000 based on the participating ratio 3-A Term insurance policy in excess of $50,000 based on the participating ratio 4- A Term insurance policy at the minimum default of $50,000 coverage. Option 2 & 3 will indeed create a taxable event in accordance with the Treasury Regulations taxable economic benefit rules and realized by the employee.) IRC Sections 79(b)(2) and 264(a)(1), and Treasury Regulation Section 1.79-2(c)(2), IRC Section 6052, Treasury Regulation Section1.79-1(d)(1), Treasury Regulation Section 1.79-1(c)(2)(i) YOUR ARTICLE: “However, there is no rule that says the insurance offered has to be term life insurance. That’s where the insurance agents figure there’s an opportunity to sell some cash value life insurance.” REPLY: This is a Treasury Regulation pertaining to Section 79 – Corp Sponsored Group Life rules – a required option that must be offered to the rank & file employees – per the law. To characterize this as some kind of shady event perpetrated by an insurance broker is disingenuous at best and an outright lie as presented by the author of this article. See Treasury Regulation Sections 1.79-0; 1.79-1(b) and 1(d). YOUR ARTICLE: “So if the employer just buys all the employees a $50K term policy … “REPLY: This is not an option for the employer as the employer cannot own or be a beneficiary of the employees policy & does not dictate the employees option to choose per the tax code. See Treasury Regulation Sections 1.79-0; 1.79-1(b) and 1(d), IRC Section 79(d)(2)(B), IRC Section 79(d)(5), YOUR ARTICLE: ” … the entire cost (to the employer) of that is probably deductible …” REPLY: “…probably deductible…” Why the purposely vague statement in an analytical article? It is fully deductible as a legitimate business expense the same as health insurance, disability insurance or any other employee benefits plan defined in the tax code. Did your ‘experts’ tell you this? The tax code sure doesn’t. YOUR ARTICLE: “If he (employer) decides to instead offer a permanent life insurance policy, the entire cost is no longer deductible.” REPLY: Absolutely False- the code allows for a full tax deduction to the business no matter which option the employee chooses. The individual employee may have to recognize an economic benefit tax but not the employer. Treasury Regulation Section 1.79-3 (employee recognizes all taxable income in excess of $50,00 of coverage, not the employer) Per the tax code:The cost of these plans is 100-percent deductible to the corporation as an ordinary and necessary business expense under Section 162(a). YOUR ARTICLE: Scaring the Employees “Just like with a 401(k) or other more typical employer-offered retirement plan, you can’t discriminate against your employees.”
REPLY: You said you can earlier in your article – “So the employer gets to offer the employee a tiny amount of life insurance and write it off as a business expense.” “Sometimes, the employer will even let the employee buy a little bit more of the insurance.” YOUR ARTICLE: “If you want to buy yourself a whole life policy…” REPLY: Whole Life policies are not available in a Section 79 plan. YOUR ARTICLE: “In fact, the polices are so bad, that most who sell them actually encourage you to get rid of them as soon as possible, which is after 5 years, by exchanging the policy into a better policy.”
REPLY: This is not part of the presentation process to a client. Clients keep the policy as originally written. Once the MEC limit is reached the policy automatically adjusts to minimize cost and optimize other benefits. A function available to many insurance policies.
Your opinion column will not stand up to either the tax code or licensed tax advisors who do the research. And by the way, the American Institute of Certified Public Accounts has already published an independent objective analysis of the code section for their CPA members. Here’s a quote from the article they sent to their CPAs … “many advisors, CPAs and Employee Retirement Income Security Act (ERISA) attorneys find appreciable value in the planning opportunities presented by Section 79 Plans, particularly their ease of implementation, simplicity of design and absence of potentially harmful legislative complications.” Thank you doctor. I won’t need to reply beyond this point.
First, nobody is going to get in trouble by NOT buying a Section 79 plan. It’s pretty obvious that I’m not going to get in trouble for recommending against them. It’s also patently obvious that this plan is optional at best. Even if I’m wrong and these things are the best thing since sliced bread, the worst case scenario is they lose some money they would have had if they had used this plan.
Second, I certainly agree with you that if a reader is seriously considering buy a Section 79 plan, they should seek professional advice from someone who is not profiting from its sale. Why did I not mention that in the article? Because I think it’s dumb to seriously consider buying one.
Third, thanks for the resources and relatively minor corrections. (Assuming they’re right, as I don’t have time to go look them all up nor the time, interest, or money to seek out a professional opinion from an unbiased source,) they don’t really change my opinion of Section 79 Plans. I still think they’re a lousy idea for docs and mostly a way for agents to enrich themselves. If you disagree, feel free to submit a guest post that will be read by more than a few dozen people a year.
MST T Frost is very accurate and I must say you are not again, stick with saving lives and stop trying to be a financial professional when clearly you are not. Now you are making money on the financial planning course, wonderful get docs to trust you by going against 180+ years of financial knowledge just to suck money out of your fellow white coats you are pathetic!
[Ad hominem attack removed.]
[Ad hominem attack removed.]
I don’t sell these plans, but spent 30 years as a consultant in the employee benefit industry and now as a fee only financial planner, and enrolled agent of the IRS, and acting as a full fiduciary for my clients with the focus on tax planning and estate planning, here are just a few valuable planning considerations in dealing with these plans,
To purchase permanent life insurance with corporate dollars
Deduct all of the cost to the C corporation as a business expense
Allow the transfer of corporate dollars to the business owner on a tax-favored basis
Grow the money in the plan in a tax-deferred setting
Access to money in the plan can be achieved through policy loans on a tax-deferred basis
Death benefits can pass to heirs on an income tax-free basis.
There are no regulatory limits on funding for the key participants
May provide asset protection by removing plan assets from the reach of company creditors
Provides for minimal rank and file employee cost
Insurance cash values may provide tax-free income as long as the policy is kept in force and withdrawals do not exceed the cost basis
A section 79 plan may be used for the following applications:
Group life insurance benefits
Deductible insurance to fund estate planning needs of the business owner
Deductible insurance to provide personal life insurance needs for the owner
Deductible insurance to fund a buy-sell agreement or key man policy
Future business buyout on a tax-advantaged basis
Stick with trained, well informed tax and estate focused fiduciaries for financial advice.
[Ad hominem attack removed.]
Do you talk to people like that in real life or are you just mean on the internet?
If you see an inaccuracy, correct it. If you disagree with an opinion, argue yours. But stopping by on a post published years ago just to post an ad hominem attack and then signing it with your real name says a whole lot more about you than me.
Leave another comment like that and it’ll be the last one you leave on this website.
When were these section 79 policies being audited or looked at by the IRS? I believe it was well before 2012.
Whenever this article was written: https://www.hgexperts.com/expert-witness-articles/section-79-and-other-abusive-plans-being-audited-irs-27341
This one was dated 2011: https://finance.toolbox.com/blogs/lanwalla/irs-attacks-business-owners-in-419-412-section-79-and-captive-insurance-plans-under-section-6707a-061011
The IRS is so short these days, I’m not sure they’re auditing anyone. I tried calling a few weeks ago and waited over an hour.
Oh yeah, they are. They hit a company called Southwest Financial and audited all of their section 79 clients and hit pacific life who underwrites the policies. The IRS even has a special task force out for these plans.