This is a follow up to an article that I wrote in March of this year concerning captive insurance companies. I simply write this as a warning or  caution to emphasize that the IRS is aggressively reviewing these companies,  even more so when they are used as investment plans.

The IRS is aware  that captive insurance companies have been used improperly. They believe captive insurance companies are being used as fraudulent tax shelters. While many of these captive insurance companies serve legitimate purposes, some do not. The IRS has assessed additional taxes, penalties and/or interest on thousands of taxpayers. The IRS rules require filing Form 8866 for these investments so please see a knowledgeable CPA about these matters. The penalties for failing to file Form 8866 can be $200,000 for a business and $100,000 for an  individual.

If you are starting a captive insurance company or considering investing in one make sure you get a good legal opinion that there exists a legitimate purpose for the entity. If you are selling shares in a captive insurance company as an investment or tax shelter to your clients, another opinion as to the legitimacy of the business purpose is warranted.
 
Also, if you received a notice from the IRS, simply stopping additional funding into the captive insurance company or investment plan in the captive insurance company does not solve the problem. This is because you are continuing to receive a tax shelter for the money already invested. An IRS notice is definitely cause to seek counsel and an experienced CPA.
             
If you have any questions about captive insurance companies please contact me at jmcguire@c-wlaw.com.
 
 
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If you Google him, you will find that Hank Kuehne is “an American former U.S. Amateur champion and professional golfer who enjoyed some success on the PGA Tour.”  If you scroll down you will even see that he was, until recently, engaged to Venus Williams. Page down far enough and you will see that he apparently dated Paula Abdul before Venus.  Seems great so far . . . golf and women, two wonderful things.  Well . . . you have to page down pretty far, and it is well hidden but, if you persevere, you will find an example of what not to do as a financial advisor, tax preparer, and CPA.  This is exactly how you make a mountain out of a molehill.
                 
It seems that Hank Keuhne has sued his accountant[i]in the Federal District Court for the Southern District of Florida.  This case appears to be a classic example of what not to do and why not to cover it up. According to the Pleadings in the case, the accountant, Thomas J. Bertsch, held himself out as an expert in local, state and federal taxes and agreed to prepare Mr. Kuehne’s tax returns and provide him with financial advice.  However, despite inquiring as to the status of his taxes, it was not until Mr. Kuehne fired Mr. Bertsch in 2011 that he learned for the first time that he owed tax liabilities and penalties to the IRS for the years 2006 and 2007.[ii]  It was also at that time that Mr. Kuehne learned that Mr. Bertsch had made an offer in compromise to the IRS to settle these debts for $90,000.  However, the IRS countered with a demand in settlement for $342,715.  This reduced demand lapsed because Mr. Bertsch failed to respond to the IRS.
                 
This is a classic example of a simple, albeit large, tax error that was compounded by the failure to promptly reveal and resolve the matter.  If this matter was properly handled in conjunction with his attorney and the insurance company, the result would have been much different.  However, I suspect that since Mr. Bertsch failed to advise his client, he also failed to advise his employer, his attorney, or his insurance company.
                 
Now instead of simply being potentially responsible for the interest and penalties Mr. Bertsch is faced with a lawsuit in which he is facing fraud for his improperly claimed expertise, fraud for the cover up, and punitive damages, in addition to the now increased interest and penalties. Further, there is a possibility that the insurance company might deny coverage in light of the cover up and delayed reporting.  In addition to all that he now has an ethics violation and licensing violation that may cost him whatever licenses he might hold.
                 
I will assume that his supervisors and the owners of the company did not know what was happening.  Perhaps there should have been greater controls.  Who opens the mail?  Perhaps IRS notices should be reported to the responsible accountant and the supervisor or some other owner.  In any event, they must be concerned about the suit and coverage issues as the firm is a named defendant to several of the counts in the Complaint.
                 
When faced with this situation you should contact your attorney immediately. Your attorney can assist you in navigating your ethic and legal duties regarding reporting both to your insurance carrier as well as your client.  When handled properly from the beginning you can prevent the molehill  from ever becoming a mountain!
                 
If you have any questions or I can be of any assistance, please contact me at jmcguire@c-wlaw.com.
 
[i] Mr Bertsch does not appear to be or have been a CPA, but I have been unable to verify this.
 
[ii]There is also an allegation that Mr. Kuehne owes California state taxes over some gambling income.

 
 
Licensed professionals need to give serious consideration as to whether they shall enter a Nolo Contendere Plea.  There are serious implications on ones ability to continue to practice their profession.  Most if not all of the licensing statutes allow the Licensing Board to revoke, suspend, limit, or otherwise restrict a license.[i]
             
The Latin phrase Nolo Contendere means “I will not contest it.” The idea behind a plea of Nolo Contendere is that the criminal defendant will accept in the criminal court the charges as presented and subject themselves to the appropriate punishment as determined by the court.  However, it is also supposed to only have that effect in the criminal court.  The Nolo Contendere plea is not supposed to have any impact or relevance outside of the criminal court, particularly in civil actions.  
              
The Pennsylvania courts have determined that the professional licensing boards are “watchdogs” of the professions and therefore are empowered to maintain the high standards, which the people of this Commonwealth have a right to expect from their professionals, and therefore, the courts have held that the Boards have the ability to admit a certified copy of the docket entry of a plea of Nolo Contendere at an administrative hearing, and that a Nolo Contendere plea is evidence of an admission of guilt of a crime.
             
It should be noted that there are lots of reasons why an individual might plead Nolo Contendere in the criminal setting, including the high cost to defend the criminal case, the emotional toll of a criminal trial, and the risk of a guilty verdict and the attendant jail time that would ensue being some of the  most common.
             
While the courts have held that the Nolo Contendere plea is admissible in the administrative hearing, they have also held essentially that this Nolo Contendere plea is simply a presumption of guilt and leaves the door open for the professional to submit evidence that they are not guilty.  Obviously, having a rebuttable presumption is better than facing the licensing board with a guilty plea or criminal conviction, but the burden of establishing innocence may be difficult indeed.  Remember that your audience will ultimately be a licensing board and will initially be the prosecutor and possibly hearing officer, all of whom are likely to have never faced criminal charges and who might find it difficult to believe that a person would plead Nolo Contendere or, in their minds, essentially a guilty plea, if they were not guilty.  The reality of the situation will be that it is most likely that even an innocent person who pleads no contest, will have some disciplinary action taken upon their license.
             
It is important for any professional faced with a criminal charge to consider the effect of a Nolo Contendere plea.  Obviously, the primary focus when facing criminal charges is going to be to maintain one’s freedom and avoid jail time.  However, as a professional, you must keep in mind the effect the criminal charges will have on your ability to practice your chosen profession.  Also, please keep in mind that most criminal defence attorneys will not understand the implications of a Nolo Contendere plea upon a professional license.  The reality is that most criminal defense attorneys do not handle professional licensing matters.  
              
Ultimately, my advice is to weigh all your options and understand the potential implications of a Nolo Contendere plea before you enter it. It may very well be the right decision to make, but understand the impact it could have upon your professional license.
     
[i]For example, see the Pennsylvania Accountancy Law, Section 9.1 (5), which states that a CPA can be disciplined for entering a plea of Nolo Contendere for a felony under any federal or state law or the laws of any foreign jurisdiction.