Advisers Staring at a New ‘Slew’ of Litigation From Small-Business Clients

Advisers Staring at a New ‘Slew’ of Litigation From Small-Business Clients

Article by Jessica Toonkel with Lance Wallach

Five-year-old change in tax has left some small businesses and certain benefit plans subject to IRS fines; the advisers who sold these plans may pay the price

By Jessica Toonkel Marquez

Financial advisers who have sold certain types of retirement and other benefit plans to small businesses might soon be facing a wave of lawsuits — unless Congress decides to take action soon.

For years, advisers and insurance brokers have sold the 412(i) plan, a type of defined-benefit pension plan, and the 419 plan, a health and welfare plan, to small businesses as a way of providing such benefits to their employees, while also receiving a tax break.

However, in 2004, Congress changed the law to require that companies file with the Internal Revenue Service if they had these plans in place. The law change was intended to address tax shelters, particularly those set up by large companies.

Many companies and financial advisers didn’t realize that this was a cause for concern, however, and now employers are receiving a great deal of scrutiny from the federal government, according to experts.The IRS has been aggressive in auditing these plans. The fines for failing to notify the agency about them are 0,000 per business per year the plan has been in place and 0,000 per individual.

So advisers who sold these plans to small