Opportunities with Structured Settlements (a lucrative niche market) Webinar
If you missed last week’s newsletter, to sign up for this webinar, click on the following:
IRS Goes After Monetized Installment Sales (and advisors promoting them!)
To DOWNLOAD the 15-page IRS Notice going after these structures, click on the following:
FYI the IRS just added this structure to the “listed tax transaction list.” So, clients must disclose to the IRS if they have this structure. Also, advisors must disclose that they recommended or helped with this structure. Both clients and their advisors are subject to FINES!
-75% of the decrease in tax achieved
-20% accuracy penalty
Advisor penalties—the greater of…
-50% of the gross income derived
I’ve been warning advisors about this structure for years. But it’s like crack to advisors/IMOs (a structure that helps clients avoid taxes and fund products or pick up AUM) and they become blinded.
IRS Chief Counsel Advice Memorandum (CCA 202118016)—FYI, the IRS put out a memo on this structure back in 2021. But it seems the promoters of the structure decided not to tell their clients about it or the advisors who were duped into promoting it.
Why is the IRS going after Monetized Deferred Installment Sales?
Well, the simple answer is that they are a sham transaction. Why? Because it violates the “step-transaction” doctrine (a transaction that but for the tax benefit no one would ever do).
How do you set up this structure?
1) Set up a trust with an “independent” trustee.
2) Seller sells the asset to the trust for an unsecured, long-term, interest-only installment note, ballooning many years later (often 30 years). Only when payments from the trust are made (most from the balloon payment) does the original owner pay capital gains taxes.
3) The trust sells the asset to the buyer in exchange for a purchase price typically equal to the purchase price for which the intermediary purchased the asset from the seller. The intermediary recognizes NO TAX on the sale due to having a cost basis equal to the original purchase price.
The “step” in this transaction that is problematic is the trust that is set up.
FYI, this structure is different than a DST (Delaware Statutory Trusts). To learn about DSTs (which are a legitimate way to defer capital gains taxes), click on the following link to watch a webinar by Joe Maas.
History seems to always repeat itself!
First it was 419 Plans, then Private Annuity Trusts, then pension rescue using springing cash value life insurance, then Section 79 Plans, then Captive Insurance Companies, and now Monetized Installment Sales.
The bottom line is that I hope you were not involved in recommending these to your clients and I hope you decide to stay away from them in the future.
Is it time to evaluate the firms you work with?
This newsletter may be a reminder to advisors that the firms they work with (IMO, RIA, attorney, CPA, etc.) might not be looking out for your best interest or that of your clients.
I helped found these entities because I got tired of working with other firms. While I found some I liked and thought did a decent job, it eventually became time to do my own thing and have more control over the platform and recommendations being made.
Whether you do due diligence on the firms I am involved with or others, I do recommend you be cynical and critical when you review your current relationships to make sure you are of the opinion that they are the best ones to help you accomplish your goals.
Roccy DeFrancesco, JD, CAPP, CMP
Founder: The Wealth Preservation Institute
Founder: OnPointe Software
Co-Founder: The Asset Protection Society