What Percentage of Key-Man Policies Are 101j Compliant?

[somarco]

the word "review" is a better term than saying "audit" or "auditing".

Scientologist's audit you.

So does the IRS

 

[DHK]

What about using terminology like "auditing your disability and life insurance" etc. for whatever reason be it beneficiary designations, 101j compliance for EOLI, lowest premium, etc.

I know of brokers on this forum who use that terminology and was wondering if that is crossing over the tax advice realm.

I remember seeing this on TGP using this as a door opener or to get beyond the gate keeper, regarding 101j compliance.

What is an audit?

Audit - Definition and More from the Free Merriam-Webster Dictionary
According to Merriam Webster:

1a: a formal examination of an organization's or individual's accounts or financial situation
b: the final report of an audit

2: a methodical examination and review

Some of you guys are afraid of the English language for fear of some big "compliance problem" down the line.

The term "audit" is very appropriate for getting the attention of business owners... just use it appropriately. If you say that you're from the "IRS" conducting an audit of life insurance policies to verify that they conform to IRC section 101j... you'll have major problems.

"Audit" is very professional and formalized. So, if you're going to offer an audit, make sure you have checklists and other materials available to show that you have a detailed process. You may want to have a sample audit report to show your prospect what they can look forward to receiving at the end of your review.

***

Offering an "audit" on life insurance policies does NOT cross over into tax advice.

Just because it seems that some industries seem to "own" certain words doesn't mean that you shouldn't be able to use them.

FINRA & SEC seem to own the word "investment". FINRA/SEC regulate SECURITIES... not all investments (yet). Real Estate can be an investment. Any asset that is purchased for a financial gain is an investment. FINRA doesn't regulate collectibles, savings accounts, savings bonds, etc. Yes, Fixed Index Annuities are investments... but they are not SECURITIES.

The IRS seems to own the word "audit"... but using the term "audit" is very appropriate for corporation settings. Just because my bank was audited by the FDIC doesn't mean they were skipping out on taxes. They are verifying operational and complaince integrity.


I recommend that we all learn and use the English language to help us do a better job of getting the attention of the prospects that can use and benefit most from our services.

However, if an agent has a hard time being precise in their language, then they probably should keep doing what they are doing.

 

[scottstreet]

While it is true that a compliance dept. would have an issue giving tax advice, there is no statute against it. In fact there is no standard for the title "accountant" other than CPA. Is your book keeper an accountant? well if they say so and pay vista print to say so it's true....or not. I'm in the process of taking the Enrolled Agent exams, does this make me an accountant? No, but nothing stops me from holding myself out as one. Again, there is no standard.

 

[DHK]

Agreed. Tax advice needs to be incidental to the strategy or product being recommended.

Yes, compliance departments may have issues... but you also don't want to be doing anything that your E&O won't cover. Otherwise, you are on your own for any liabilities incurred giving "tax advice".

 

[Stephen]

Scientologist's audit you.

So does the IRS

I have found that many small business owners have very high thetan levels!

 

[scagnt83]

Anybody have a guess?

I saw this page suncrestadvisors.com/services-products/ and they claim their audit turned up 40% of non-compliance.

This to me is unbelievable. I wonder what the avg db is on some of these EOLI plans. You could be saving a company hundreds of thousands of dollars even millions in taxes!!

Is this a viable door opener into buysell, keyman, plans? Any other plans this would affect nqdc maybe?

This just freakin blows my mind that this happens, I would be fuming if this happened to my business. Are these E&O cases waiting to happen?

I have used the 101j approach when prospecting before, but have found that a broader approach works better (at least for me).


40% seems high to me, but it could be accurate. I would look for companies that have been around a while to use this approach with.


This affects any business owned Life Insurance Policy. So if the NQDC Plan is using Life Insurance to informally fund the agreement, then yes, it would apply to it.


I would guess the average DB is around $1mill to $1.5mill. Most businesses are not that big. Also, many businesses have multiple ownership.


Stuff like this happens plenty. Unless their CPA has direct experience with EOLI or has taken a CE class on it, there is a chance they have no clue this form is needed.

It could certainly have the chance for an E&O claim, especially if you are currently out there 7 years after the fact and still not getting this form signed.
Lucky for agents and employers though, the IRS has given multiple windows for companies to correct their 101j status with no penalty. Of course the best way to correct 101j non-compliance is to replace the policy!

 

[BNTRS]

This affects any business owned Life Insurance Policy. So if the NQDC Plan is using Life Insurance to informally fund the agreement, then yes, it would apply to it.

Yup, I was going to say this applies to more than just buy/sells so don't overlook this because there's more applicability.