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Did Benistar or Another
Promoter of Abusive
419 or Other Plans
Cause You Harm or Get
You Audited by the IRS?

EMAIL US HERE

Late breaking news: Large 419 plan files for
Bankruptcy.  

Recent court cases and other developments have highlighted serious problems in
plans, popularly know as
Benistar, issued by Nova Benefit Plans of Simsbury,
Connecticut. Recently unsealed IRS criminal case information now raises concerns
with other plans as well. If you have any type plan issued by NOVA Benefit Plans, U.S.
Benefits Group, Benefit Plan Advisors, Grist Mill trusts, Rex Insurance Service or
Benistar, get help at once. You may be subject to an audit or in some cases, criminal
prosecution.

On November 17th, 59 pages of search warrant materials were unsealed in the
Nova
Benefit Plans litigation currently pending in the U.S. District Court for the District of
Connecticut. According to these documents, the IRS believes that Nova is involved in
a significant criminal conspiracy involving the crimes of Conspiracy to Impede the IRS
and Assisting in the Preparation of False Income Tax Returns.  
Read more here
IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans
Under Section
6707A

By Lance Wallach

Taxpayers who previously adopted
419, 412i, captive
insurance or
Section 79 plans are in big trouble.

In recent years, the IRS has identified many of these arrangements as abusive
devices to funnel tax deductible dollars to shareholders and classified these
arrangements as listed transactions." These plans were sold by insurance agents,
financial planners, accountants and attorneys seeking large life insurance
commissions. In general, taxpayers who engage in a
“listed transaction” must report
such transaction to the IRS on
Form 8886 every year that they “participate” in
the transaction, and you do not necessarily have to make a contribution or claim a tax
deduction to participate.
Section 6707A of the Code imposes severe penalties
for failure to file Form 8886 with respect to a listed transaction. But you are also in
trouble if you file incorrectly. I have received numerous phone calls from
business owners who filed and still got fined. Not only do you have to file Form 8886,
but it also has to be prepared correctly. I only know of two people in the U.
S. who have filed these forms properly for clients. They tell me that was after
hundreds of hours of research and over 50 phones calls to various IRS personnel.
The filing instructions for Form 8886 presume a timely filling. Most people file late
and follow the directions for currently preparing the forms. Then the IRS fines
the business owner. The tax court does not have jurisdiction to abate or lower such
penalties imposed by the IRS.
Read more here
Breaking News: Don't Become A
Material Advisor

Accountants, insurance professionals and others need to be
careful that they don’t become what the IRS calls
material
advisors.  If they sell or give advice, or sign tax returns for
abusive, listed or similar plans; they risk a minimum $100,000
fine. Their client will then probably sue them after having dealt
with the IRS.  

In 2010, the IRS raided the offices of
Benistar in Simsbury, Conn.,
and seized the retirement benefit plan administration firm’s files
and records. In McGehee Family Clinic, the Tax Court ruled that a
clinic and shareholder’s investment in an employee benefit plan
marketed under the name “Benistar” was a listed transaction
because it was substantially similar to the transaction described
in Notice 95-34 (1995-1 C.B. 309). This is at least the second
case in which the court has ruled against the Benistar welfare
benefit plan, by denominating it a
listed transaction.

The McGehee Family Clinic enrolled in the Benistar Plan in May
2001 and claimed deductions for contributions to it in 2002 and
2005. The returns did not include a
Form 8886, Reportable
Transaction Disclosure Statement, or similar disclosure. The IRS
disallowed the latter deduction and adjusted the 2004 return of
shareholder Robert Prosser and his wife to include the $50,000
payment to the plan.  
Click here to read more.

419, 412i, Captive Insurance and section 79 plans continue to
get large IRS fines.  
By Lance Wallach

Life insurance agents recently have started pushing the newest variety of high
ticket items. After the IRS has almost put
419 plans out of business and severely
curtailed abusive
412i plans they needed another way to sell large commission
life insurance policies. Many of the promoters of the 419 and 412i plans are now
promoting
section 79 and captive insurance plans. They claim that these plans
allow businesses to tax deduct life insurance. These promoters as in the past
claim, that most of the benefits would be for the business owners. I have been an
expert witness in many cases against these abusive plans and my side has
never lost a case.
Recently my office has been receiving over fifty calls per month from people that
are being threatened with large IRS fines. Most of these people (including CPAs)
do not understand why this is happening. These fines are primarily the result of
greed. Insurance company, insurance agent, plan promoter and even IRS greed.
Insurance companies are always looking for ways to sell large amounts of life
insurance. Taxpayers are constantly looking for larger tax deductions. Insurance
agents want to earn large life insurance commissions. The IRS has started
additional enforcement action against taxpayers and accountants.
Read more
here
Plan administrators frustrated with IRS attacks on 412i, 419e plans


IRS Auditing 412(i) Plans
IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section
79 Scams

By Lance Wallach                                                                                          June 2011


The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i
and other plans that they considered abusive, listed, or reportable transactions, or
substantially similar to such transactions.

In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-115), the Tax
Court ruled that an investment in an employee welfare benefit plan marketed under
the name “Benistar” was a listed transaction in that the transaction in question was
substantially similar to the transaction described in IRS Notice 95-34. A subsequent
case, McGehee Family Clinic, largely followed Curcio, though it was technically
decided on other grounds. The parties stipulated to be bound by Curcio on the
issue of whether the amounts paid by McGehee in connection with the Benistar 419
Plan and Trust were deductible. Curcio did not appear to have been decided yet at
the time McGehee was argued. The McGehee opinion (Case No. 10-102) (United
States Tax Court, September 15, 2010) does contain an exhaustive analysis and
discussion of virtually all of the relevant issues.

Taxpayers and their representatives should be aware that the Service has
disallowed deductions for contributions to these arrangements. The IRS is cracking
down on small business owners who participate in tax reduction insurance plans
and the brokers who sold them. Some of these plans include defined benefit
retirement plans, IRAs, or even 401(k) plans with life insurance.

In order to fully grasp the severity of the situation, one must have an understanding
of Notice 95-34, which was issued in response to trust arrangements sold to
companies that were designed to provide deductible benefits such as life
insurance, disability and severance pay benefits. The promoters of these
arrangements claimed that all employer contributions were tax-deductible when
paid, by relying on the 10-or-more-employer exemption from the IRC § 419 limits. It
was claimed that permissible tax deductions were unlimited in amount.

In general, contributions to a welfare benefit fund are not fully deductible when paid.
Sections 419 and 419A impose strict limits on the amount of tax-deductible
prefunding permitted for contributions to a welfare benefit fund. Section 419A(F)(6)
provides an exemption from Section 419 and Section 419A for certain “10-or-more
employers” welfare benefit funds. In general, for this exemption to apply, the fund
must have more than one contributing employer, of which no single employer can
contribute more than 10% of the total contributions, and the plan must not be
experience-rated with respect to individual employers.

According to the Notice, these arrangements typically involve an investment in
variable life or universal life insurance contracts on the lives of the covered
employees. The problem is that the employer contributions are large relative to the
cost of the amount of term insurance that would be required to provide the death
benefits under the arrangement, and the trust administrator may obtain cash to pay
benefits other than death benefits, by such means as cashing in or withdrawing the
cash value of the insurance policies. The plans are also often designed so that a
particular employer’s contributions or its employees’ benefits may be determined in
a way that insulates the employer to a significant extent from the experience of other
subscribing employers. In general, the contributions and claimed tax deductions
tend to be disproportionate to the economic realities of the arrangements.

Benistar advertised that enrollees should expect to obtain the same type of tax
benefits as listed in the transaction described in Notice 95-34. The benefits of
enrollment listed in its advertising packet included:
·        Virtually unlimited deductions for the employer;
·        Contributions could vary from year to year;
·        Benefits could be provided to one or more key executives on a selective basis;
·        No need to provide benefits to rank-and-file employees;
·        Contributions to the plan were not limited by qualified plan rules and would not
interfere with pension, profit sharing or 401(k) plans;
·        Funds inside the plan would accumulate tax-free;
·        Beneficiaries could receive death proceeds free of both income tax and estate
tax;
·        The program could be arranged for tax-free distribution at a later date;
·        Funds in the plan were secure from the hands of creditors.
The Court said that the Benistar Plan was factually similar to the plans described in
Notice 95-34 at all relevant times. In rendering its decision the court heavily cited
Curcio, in which the court also ruled in favor of the IRS. As noted in Curcio, the
insurance policies, overwhelmingly variable or universal life policies, required large
contributions relative to the cost of the amount of term insurance that would be
required to provide the death benefits under the arrangement. The Benistar Plan
owned the insurance contracts.

Following Curcio, as the Court has stipulated, the Court held that the contributions
to Benistar were not deductible under section 162(a) because participants could
receive the value reflected in the underlying insurance policies purchased by
Benistar—despite the payment of benefits by Benistar seeming to be contingent
upon an unanticipated event (the death of the insured while employed). As long as
plan participants were willing to abide by Benistar’s distribution policies, there was
no reason ever to forfeit a policy to the plan. In fact, in estimating life insurance
rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures,
even though he admitted that an insurance company would generally assume a
reasonable rate of policy lapses.

The McGehee Family Clinic had enrolled in the Benistar Plan in May 2001 and
claimed deductions for contributions to it in 2002 and 2005. The returns did not
include a Form 8886,Reportable Transaction Disclosure Statement, or similar
disclosure.

The IRS disallowed the latter deduction and adjusted the 2004 return of
shareholder Robert Prosser and his wife to include the $50,000 payment to the
plan. The IRS also assessed tax deficiencies and the enhanced 30% penalty
totaling almost $21,000 against the clinic and $21,000 against the Prossers. The
court ruled that the Prossers failed to prove a reasonable cause or good faith
exception.


More you should know:

·        In recent years, some section 412(i) plans have been funded with life
insurance using face amounts in excess of the maximum death benefit a qualified
plan is permitted to pay.  Ideally, the plan should limit the proceeds that can be paid
as a death benefit in the event of a participant’s death.  Excess amounts would
revert to the plan.  Effective February 13, 2004, the purchase of excessive life
insurance in any plan is considered a listed transaction if the face amount of the
insurance exceeds the amount that can be issued by $100,000 or more and the
employer has deducted the premiums for the insurance.
·        A 412(i) plan in and of itself is not a listed transaction; however, the IRS has a
task force auditing 412i plans.
·        An employer has not engaged in a listed transaction simply because it is a 412
(i) plan.
·        Just because a 412(i) plan was audited and sanctioned for certain items,
does not necessarily mean the plan engaged in a listed transaction. Some 412(i)
plans have been audited and sanctioned for issues not related to listed
transactions.


Companies should carefully evaluate proposed investments in plans such as the
Benistar Plan. The claimed deductions will not be available, and penalties will be
assessed for lack of disclosure if the investment is similar to the investments
described in Notice 95-34. In addition, under IRC
6707A, IRS fines participants a
large amount of money for not properly disclosing their participation in listed,
reportable or similar transactions; an issue that was not before the Tax Court in
either Curcio or McGehee. The disclosure needs to be made for every year the
participant is in a plan. The forms need to be properly filed even for years that no
contributions are made. I have received numerous calls from participants who did
disclose and still got fined because the forms were not filled in properly. A plan
administrator told me that he assisted hundreds of his participants file forms, and
they still all received very large IRS fines for not properly filling in the forms.

IRS has been attacking all
419 welfare benefit plans, many 412i retirement plans,
captive insurance plans with life insurance in them and Section 79 plans.

Lance Wallach, National Society of Accountants Speaker of the Year and member of
the AICPA faculty of teaching professionals, is a frequent speaker on retirement
plans, abusive tax shelters, financial, international tax, and estate planning.  He
writes about 412(i), 419, Section79, FBAR, and captive insurance plans. He speaks
at more than ten conventions annually, writes for over fifty publications, is quoted
regularly in the press and has been featured on television and radio financial talk
shows including NBC, National Pubic Radio’s All Things Considered, and others.
Lance has written numerous books including Protecting Clients from Fraud,
Incompetence and Scams published by John Wiley and Sons, Bisk Education’s
CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation, as well as the
AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and
Common Abusive Small Business Hot Spots. He does expert witness testimony
and has never lost a case. Contact him at 516.938.5007, lawallach@aol.com or
visit www.vebaplan.com.




The information provided herein is not intended as legal, accounting, financial or
any type of advice for any specific individual or other entity. You should contact an
appropriate professional for any such advice.
Benistar

IANTOSCA v. BENISTAR ADMIN SERVICES, INC.

On January 10, 2011, the government moved to intervene in this case, alleging that
federal tax liens against BASI and Benistar 419 had attached to any proceeds to
which those parties may become entitled as a result of a Pennsylvania lawsuit
they brought ("the Pennsylvania Settlement"). Those tax liens arose when, on July
8, 2009, the Secretary of the Treasury made identical assessments for tax
penalties, pursuant to 26 U.S.C. § 6708, against both BASI and Benistar 419 for
$1,120,000, neither of which has been paid. It sought to enforce those liens by
attaching to any interest those entities or their alter egos have in the Pennsylvania
Settlement. To Read More Click Link Below:
http://getnewclients.blogspot.com/2012/03/benistar.html
More Bad News for Holders of Welfare Benefit Plans - Nova Faces Another Legal   
Setback
To Read More:
http://getnewclients.blogspot.com/2012/09/more-bad-news-for-holders-of-welfare.html



Journal Of Accountancy



Abusive Insurance and Retirement Plans

Single–employer section 419 welfare benefit plans are the latest incarnation in
insurance deductions the IRS deems abusive.

By Lance Wallach


Some of the listed transactions CPA tax practitioners are most likely to encounter are
employee benefit insurance plans that the IRS has deemed abusive. Many of these
plans
have been sold by promoters in conjunction with life insurance companies.

As long ago as 1984, with the addition of IRC §§ 419 and 419A, Congress and the
IRS
took aim at unduly accelerated deductions and other perceived abuses. More
recently,
with guidance and a ruling issued in fall 2007, the Service declared as abusive
certain
trust arrangements involving cash-value life insurance and providing post-retirement
medical and life insurance benefits.

The new "more likely than not" penalty standard for tax preparers under IRC § 6694
raises the stakes for CPAs whose clients may have maintained or participated in
such a
plan. Failure to disclose a listed transaction carries particularly severe potential
penalties.

Many of the listed transactions that can get your clients into trouble with the IRS are
exotic
shelters that relatively few practitioners ever encounter. When was the last time you
saw
someone file a return as a Guamanian trust (Notice 2000-61)? On the other hand, a
few listed
transactions concern relatively common employee benefit plans the IRS has
deemed tax-
avoidance schemes or otherwise abusive. Perhaps some of the most likely to crop
up,
especially in small business returns, are arrangements purporting to allow
deductibility of
premiums paid for life insurance under a welfare benefit plan.

Some of these abusive employee benefit plans are represented as satisfying
section 419 of the
Code, which sets limits on purposes and balances of “qualified asset accounts” for
such
benefits, but purport to offer deductibility of contributions without any corresponding
income.
Others attempt to take advantage of exceptions to qualified asset account limits,
such as sham
union plans that try to exploit the exception for separate welfare benefit funds under
collective-
bargaining agreements provided by IRC § 419A(f)(5). Others try to take advantage of
exceptions for plans serving 10 or more employers, once popular under section 419A
(f)(6).
More recently, one may encounter plans relying on section 419(e) and, perhaps,
defined-benefit
pension plans established pursuant to the former section 412(i) (still so-called, even
though the
subsection has since been redesignated section 412(e)(3)). See section below, “
Defined-Benefit
412(i) Plans Under Fire.”

Parts of this article are from the AICPA CPE self-study course Avoiding Circular 230
Malpractice Traps and Common Abusive Small Business Hot Spots, by Sid Kess,
authored by
Lance Wallach.

PROMOTERS AND THEIR BEST-LAID PLANS

Sections 419 and 419A were added to the Code by the Deficit Reduction Act of 1984
in an
attempt to end employers’ acceleration of deductions for plan contributions. But it
wasn’t long
before plan promoters found an end run around the new Code sections. An industry
developed
in what came to be known as 10-or-more-employer plans. The promoters of these
plans, in
conjunction with life insurance companies who just wanted premiums on the books,
would sell
people on the idea of tax-deductible life insurance and other benefits, and especially
large tax
deductions. It was almost, “How much can I deduct?” with the reply, “How much do
you
want to?” Adverse court decisions (there were a few) and other law to the contrary
were either
glossed over or explained away.

The IRS steadily added these abusive plans to its designations of listed
transactions. With
Revenue Ruling 90-105, it warned against deducting certain plan contributions
attributable to
compensation earned by plan participants after the en 419A claimed by 10-or-more-
employer
benefit funds were likewise proscribed in Notice 95-34. Both positions were
designated listed
transactions in 2000.

At that point, where did all those promoters go? Evidence indicates many are now
promoting
plans purporting to comply with section 419(e). They are calling a life insurance plan
a welfare
benefit plan (or fund), somewhat as they once did, and promoting the plan as a
vehicle to obtain
large tax deductions. The only substantial difference is that these are now single-
employer
plans. And again, the IRS has tried to rein them in, reminding that listed transactions
include
those substantially similar to any that are specifically described and so designated.

On Oct. 17, 2007, the IRS issued notices 2007-83 and 2007-84. In the former, the IRS
identified certain trust arrangements involving cash-value life insurance policies, and
substantially similar arrangements, as listed transactions. The latter similarly
warned against
certain post-retirement medical and life insurance benefit arrangements, saying they
might be
subject to “alternative tax treatment.” The IRS at the same time issued related
Revenue Ruling
2007-65 to address situations where an arrangement is considered a welfare
benefit fund but
the employer’s deduction for its contributions to the fund is denied in whole or in part
for
premiums paid by the trust on cashvalue life insurance policies. It states that a
welfare benefit
fund’s qualified direct cost under section 419 does not include premium amounts
paid by the
fund for cash-value life insurance policies if the fund is directly or indirectly a
beneficiary under
the policy, as determined under section 264(a).

Notice 2007-83 is aimed at promoted arrangements under which the fund trustee
purchases
cash-value insurance policies on the lives of a business’s employee/owners, and
sometimes key
employees, while purchasing term insurance policies on the lives of other
employees covered
under the plan. These plans anticipate being terminated and that the cash-value
policies will be
distributed to the owners or key employees, with very little distributed to other
employees. The
promoters claim that the insurance premiums are currently deductible by the
business, and that
the distributed insurance policies are virtually tax-free to the owners. The ruling
makes it clear
that, going forward, a business under most circumstances cannot deduct the cost of
premiums
paid through a welfare benefit plan for cash-value life insurance on the lives of its
employees.
The IRS may challenge the claimed tax benefits of these arrangements for various
reasons:
Some or all of the benefits or distributions provided to or for the benefit of
employee/owners
or key employees may be disqualified benefits for purposes of the 100% excise tax
under
section 4976.

Whenever the property distributed from a trust has not been properly valued by the
taxpayer,
the IRS said in Notice 2007-84 that it intends to challenge the value of the distributed
property,
including life insurance policies.

Under the tax benefit rule, some or all of an employer’s deductions in an earlier year
may have
to be included in income in a later year if an event occurs that is fundamentally
inconsistent
with the premise on which the deduction was based.

An employer’s deductions for contributions to an arrangement that is properly
characterized as
a welfare benefit fund are subject to the limitations and requirements of the rules in
sections
419 and 419A, including reasonable actuarial assumptions and nondiscrimination.
Further, a
taxpayer cannot obtain a deduction for reserves for post-retirement medical or life
benefits
unless the employer intends to use the contributions for that purpose.

The arrangement may be subject to the rules for split-dollar arrangements,
depending on the
facts and circumstances.

Contributions on behalf of an employee/owner may be characterized as dividends or
as
nonqualified deferred compensation subject to section 404(a)(5), section 409A or
both,
depending on the facts and circumstances.

THE HIGHER RISKS FOR PRACTITIONERS UNDER NEW PENALTIES

The updated Circular 230 regulations and the new law (IRC § 6694, preparer
penalties) make it
more important for CPAs to understand what their clients are deducting on tax
returns. A CPA
may not prepare a tax return unless he or she has a reasonable belief that the tax
treatment of
every position on the return would more likely than not be sustained on its merits.
Proposed
regulations issued in June 2008 spell out many new implications of these changes
introduced by
the Small Business and Work Opportunity Act of 2007.

The CPA should study all the facts and, based on that study, conclude that there is
more than a
50% likelihood (“more likely than not”) that, if the IRS challenges the tax treatment, it
will be
upheld. As an alternative, there must be a reasonable basis for each position on the
tax return,
and each position needs to be adequately disclosed to the IRS. The reasonable-
basis standard is
not satisfied by an arguable claim. A CPA may not take into account the possibility
that a return
will not be audited by the IRS, or that an issue will not be raised if there is an audit.

It is worth noting that listed transactions are subject to a regulatory scheme
applicable only to
them, entirely separate from Circular 230 requirements, regulations and sanctions.
Participation
in such a transaction must be disclosed on a tax return, and the penalties for failure
to disclose
are severe—up to $100,000 for individuals and $200,000 for corporations. The
penalties apply
to both taxpayers and practitioners. And the problem with disclosure, of course, is
that it is apt
to trigger an audit, in which case even if the listed transaction were to pass muster,
something
else may not.

NEED FOR CAUTION

Should a client approach you with one of these plans, be especially cautious, for
both of you.
Advise your client to check out the promoter very carefully. Make it clear that the
government
has the names of all former 419A(f)(6) promoters and, therefore, will be scrutinizing
the
promoter carefully if the promoter was once active in that area, as many current 419
(e)
(welfare benefit fund or plan) promoters were. This makes an audit of your client far
riskier
and more likely.  

       DEFINED-BENEFIT 412(i) PLANS UNDER FIRE


The IRS has warned against so-called section 412(i) defined-benefit pension plans,
named for
the former IRC section governing them. It warned against certain trust arrangements
it deems
abusive, some of which may be regarded as listed transactions. Falling into that
category can
result in taxpayers having to disclose such participation under pain of penalties,
potentially
reaching $100,000 for individuals and $200,000 for other taxpayers. Targets also
include some
retirement plans.

One reason for the harsh treatment of 412(i) plans is their discrimination in favor of
owners
and key, highly compensated employees. Also, the IRS does not consider the
promised tax
relief proportionate to the economic realities of these transactions. In general, IRS
auditors
divide audited plans into those they consider noncompliant and others they consider
abusive.
While the alternatives available to the sponsor of a noncompliant plan are
problematic, it is
frequently an option to keep the plan alive in some form while simultaneously hoping
to
minimize the financial fallout from penalties.

The sponsor of an abusive plan can expect to be treated more harshly. Although in
some
situations something can be salvaged, the possibility is definitely on the table of
having to treat
the plan as if it never existed, which of course triggers the full extent of back taxes,
penalties
and interest on all contributions that were made, not to mention leaving behind no
retirement
plan whatsoever.
_______________________________________

Lance Wallach, CLU, ChFC, CIMC, is the author of the AICPA’s The Team Approach
to Tax,
Financial and Estate Planning. He can be reached at lawallach@aol.com or on the
Web at,
www.vebaplan.com or 516-938-5007. The information in this article is not intended
as
accounting, legal, financial or any other type of advice for any specific individual or
other
entity. You should consult an appropriate professional for such advice.



The information provided herein is not intended as legal, accounting, financial or any
other
type of advice for any specific individual or other entity.  You should contact an
appropriate
professional for any such advice.
Case 3:10-mc-00064-AVC Document 35-2 Filed 11/17/10 Page 1 of 59

United States District Court
-----------DISTRICT OF CONNECTICUT

In the Matter of the Search of
(Name, address or Brief description of person,
property or premises to be searched)
The .office of NOV A BENEFIT PLANS LLC, also
known as BENISTAR, located at 100 Grist Mill Road,
Simsbury, Connecticut.
I Shaun Schrader being duly sworn depose and say:
APPLICATION AND AFFIDAVIT
FOR SEARCH WARRANT
CASE NUMBER:
I am a(n) IRS-CID Special Agent and have reason to believe that_ on the person of or
_x_ on the
property or premises known as (name, description and/or location)
The office of NOVA BENEFIT PLANS LLC, also known as BENISTAR, located at 100
Grist Mill Road, Simsbury,
Connecticut, 06070. The property is described as a single story office building. The
lower portion of the building consists
of red brick and windows, while the upper portion of the building consists of
horizontal gray siding. The property is
accessed by a short driveway off of Grist Mill Road. At the bottom of the driveway is a
red brick structure with a sign
attached to it that says "1 00 GRIST MILL RD." At the top of the driveway, as you
approach the parking lot, is a wooden
sign that reads "DIRECTORY, ENTRANCE 1, BENISTAR." There is no signage on
the exterior of the building itself.
in the District of CONNECTICUT
there is now concealed a certain person or property, namely (describe the person or
property to be
seized)
See Attachment B.
which is (state one or more bases for search and seizure set forth under Rule 41 (b)
of the Federal
Rules of Criminal Procedure)
fruits, evidence, and/or instrumentalities
concerning violations of Title ll. United States Code, Section 371 and Title 26 United
States Code, Section
7206(2)
The facts to support a fmding of Probable Cause are as follows:
See attached Affidavit.
Continued on the attached sheet and made a part Sworn to before me, and
subscribed in my presence
April ~~2010
Date
Hon. Thomas P. Smith. U.S. Magistrate Judge
Name and Title of Judicial Officer

Special Agent Shaun Schrader, IRS-CID
at Hartford. Connecticut
City and State

Signature of Judicial Officer
Case 3:10-mc-00064-AVC Document 35-2 Filed 11/17/10

United States District Court
-----------DISTRICT OF ----=CONNECTICUT

In the Matter of the Search of
(Name, address or Brief description of person,
property or premises to be searched)
The office of NOV A BENEFIT PLANS LLC, also
known as BENIST AR, located at 100 Grist Mill
Road, Simsbury, Connecticut.
SEARCH WARRANT
CASE NUMBER:
To: Shaun Schrader, IRS-CID and any Authorized Officer of the United States
Affidavit(s) having been made before me by Special Agent Shaun Schrader who has
reason to believe that
on the person of or x_ on the property or premises known as (name, description
and/or location)
The office of NOVA BENEFIT PLANS LLC, also known as BENIST AR, located at 100
Grist Mill Road, Simsbury,
Connecticut, 06070. The property is described as a single story office building. The
lower portion of the building consists
of red brick and windows, while the upper portion of the building consists of
horizontal gray siding. The property is
accessed by a short driveway off of Grist Mill Road. At the bottom of the driveway is a
red brick structure with a sign
attached to it that says "1 00 GRIST MILL RD." At the top of the driveway, as you
approach the parking Jot, is a wooden
sign that reads "DIRECTORY, ENTRANCE 1, BENISTAR." There is no signage on
the exterior of the building itself.
in the District of CONNECTICUT there is now
concealed a certain person or property, namely (describe the person or property to
be· seized)
See Attachment B.
I am satisfied that the affidavit(s) and any recorded testimony establish probable
cause to believe that the
person or property so described is now concealed on the person or premises
above-described and
establish grounds for the issuance of this warrant.
YOU ARE HEREBY COMMANDED to search on or before Apnil ~~ 20 I 0
(not to exceed 10 days) the person or place named above for the person or property
specified, serving this
warrant and making the search (in the daytime-6:00A.M. to 10:00 P.M.) (at any time in
the da, 01 night
as I find  reasonable cause has been established) and if the person or property be
found there to seize
same, leaving copy of this warrant and receipt for the person or property taken, and
prepare a written
inventory of the person or property seized and promptly return this warrant to
THOMAS P. SMITH.
UNITED STATES MAGISTRATE JUDGE as required by law.
April 2010 at

Date and Time Issued I
THOMAS P. SMITH
UNITED STATES MAGISTRATE JUDGE
Name and Title of Judicial Officer
at HARTFORD. CONNECTICUT
City and State
Signature of Judicial Officer

Case 3:10-mc-00064-AVC Document 35-2 Filed

AFFIDAVIT IN SUPPORT OF APPLICATION FOR
SEARCH WARRANT
Your Affiant, Shaun Schrader, being first duly sworn and under oath states as follows:
INTRODUCTION
1. I am employed as a Special Agent with the Internal Revenue Service, Criminal
Investigation Division (hereinafter "IRS-GID") in Milwaukee, Wisconsin. I have been
employed in this capacity since April 2004. As a Special Agent, I have received
extensive training at the Federal Law Enforcement Training Center at Glynco,
Georgia. Thr'?ughout the course of my training, I studied a variety of law
enforcement, criminal invest,igation, and tax crime issues, including search and
seizure, violations of the Internal Revenue Laws, and Internal Revenue Service
policies and procedures in criminal investigations. As a Special Agent of IRS-CID,
my responsibilities include the investigation of possible criminal violations of the
Internal Revenue Laws (Title 26, United States Code), The Bank Secrecy Act (Title
31, United States Code), the Money Laundering Control Act (Title 18, United States
Code), and related offenses. I have personally conducted and participated in
numerous criminal investigations of individuals involved in illegal activities for
possible violations of the United States Code and related laws. During my course of
employment, I have conducted investigations utilizing surveillance techniques,
informants, search warrants, seizure warrants, undercover operations, securing
seized evidence, and analyzing financial documents.

Case 3:10-mc-00064-AVC Document 35-2 Filed
2. submitting this affidavit in support of an application for a warrant to search the
office of NOVA BENEFIT PLANS LLC (hereinafter "NOVA"), also known as
BENISTAR, located at 100 Grist Mill Road, Simsbury, Connecticut for evidence
related to a scheme to defraud the IRS. The NOVA office is further described in the
narrative description contained in Attachment A.
3. This affidavit is based upon my personal knowledge, records and information that
have been previously obtained by investigation, subpoena, interview, and/or
provided by other law enforcement officers as part of an ongoing investigation
involving NOVA and related entities and individuals. I respectfully submit that there is
probable cause that the NOVA office at 100 Grist Mill Road, Simsbury, Connecticut
contains evidence of violations of Title 18 U.S.C. § 371, that is, a Conspiracy to
Impede the Lawful Function of the IRS, and violations of Title 26 U.S. C. § 7206(2),
which is Assisting in the Preparation of False Income Tax Returns. Nova, its
principals, and employees are committing these violations through the promotion
and
administration of abusive
419 welfare benefit plans; these plans are described more
fully below. The items to be seized as evidence of these violations are described in
Attachment B to this affidavit.
BACKGROUND
4. Over the past eight months, IRS-CID has been conducting an investigation of
NOVA
and related entities and individuals. According to a NOVA marketing brochure, the
company offers comprehensive welfare benefit plans - with plans offering single or
multiple benefits, ranging from sickness & accident to long term care and life
coverage.
2
Case 3:10-mc-00064-AVC Document 35-2 Filed
5. This investigation has been conducted by way of an undercover operation wherein
a
cooperating witness (hereinafter "CW") and several IRS-CID undercover agents
(hereinafter "UCAs") have penetrated NOVA to ascertain its business purposes and
operation. This investigation has revealed that NOVA, along with its related
companies, is promoting and administering abusive 419
welfare benefit plans (419
welfare benefit plans are described in more detail below). The end result of the
I
abusive 419 plans is that individual participants are able to violate the Internal
Revenue Code by claiming the most minor of injuries (e.g. minor scars, broken
wrists
that fully heal) as instances of permanent disablement and disfigurement, and in so
doing, make themselves appear qualified for tax-favored treatment under the Internal
Revenue Code. The actions of NOVA and its employees also resulted in the
provision of false and misleading documents to the IRS; documents which were
either backdated, allowing their clients to claim deductions for years in which no
contribution was made, or which overstated their clients' tax basis, consequently
understating their tax liability. The backdating of 419 plan documents, the intentional
provision to the IRS of false documents which overstated their client's tax basis, and
the mischaracterization of their clients' minor injuries as instances of permanent and
total disability or disfigurement were the means by which NOVA aided and assisted
its clients in filing false tax returns.
6. By using a 419A(f)(6) plan, a business/employer can contribute money, which is
deductible as a business expense, to the plan on behalf of a covered
employee/beneficiary. Then, with the assistance of NOVA, at a later date the
covered employee is able to obtain the money contributed to the plan by the
employer substantially tax-free either through a questionable disability or by
3
Case 3:10-mc-00064-AVC Document 35-2 Filed
terminating the plan and representing to the
IRS an overstated basis in the insurance
policy when the policy is cashed out.
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