Here’s a letter to the IRS from a life insurance agent. He’s alerting the IRS to a scheme I have come across many times. With all due respect to the author of the letter, it seems that the primary complaint is that an accounting firm is pimping the idea. (I have always come across this scheme straight from life insurance sales agents). Pot calls kettle black. Film at 11.
Nevertheless, the more important point to get out of this is to be generally wary of Really Clever Schemes. Take your sanity pills, folks. And take this guy’s advice. Look at who gets paid, and how much, when you’re on the receiving end of a sales pitch. That information alone will speak volumes.
Here’s the letter to Pamela Olson.
Ms. Pamela F. Olson
Assistant Secretary – Tax Policy
1500 Pennsylvania Avenue, Room 3120
Washington, D.C. 20220
Dear Ms. Olson,
I would like to take this opportunity to thank you for your interest in creating transparency and making certain that CPA firms are not in conflict of interest with their clients’ needs. I have been a life insurance agent for the past twenty years, and I have come across a egregious abuse of tax planning by a * * * accounting firm.
They are, in addition to preparing, auditing, and offering tax advice, actively selling life insurance in a plan (see enclosed) which has all the earmarks of a major conflict of interest and a scheme to pay very little tax on accumulated qualified accounts. Briefly, the client is advised to take their qualified money and create a “new” corporation (sometimes a sham) and then start a profit sharing plan, roll the qualified account into the profit sharing plan, and then purchase huge amounts of life insurance in this plan.
After two or three years, the client would purchase the life insurance back personally from the pension trust for the cash surrender value, which at that time is minimal. This will avoid most of the taxation on their qualified money. Then by creating a huge irrevocable life insurance trust outside their estate, they would avoid any estate taxes. Of course, the commissions being earned by this accounting firm are very large. And to this writer, seem to be a serious conflict of interest.
I hope you agree with my concerns, and take measures that will keep accounting firms focused on their role as tax preparers, advisors and auditors, and not adding the role as salesman.
I have not furnished the name of this firm. However, if you feel that it is necessary for me to provide additional information, please feel free to contact me at * * *.
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