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This brings up an interesting issue: If the plan is marginal from a wealth-building standpoint, then why are agents selling it? Again, there are two reasons:
In order to avoid substantial IRS fines, business owners and material advisors involved in the sale of any of the above type plans must properly file under Section 6707A. Yet filing often isn’t enough; many times, the IRS assesses fines on clients whose accountants did file the form yet made a mistake – an error that usually results in the client being fined more quickly than if the form were not filed at all.
Everyone in a Section 79 should file protectively under Section 6707A – and anyone who has not filed protectively in a 419 or 412(i) had better get some good advice from someone who knows what is going on, and has extensive experience filing protectively. The IRS still has task forces auditing these plans, and will soon move on to Section 79 scams, including many of the illegal captives pushed by the insurance companies and agents (though not all captives are illegal ).