Please note that Portnoff Financial has joined with Tempus Wealth Planning and some information here may no longer be applicable. Please contact Jeremy Portnoff at 949-226-8342 (CA) or 732-226-3113 (NJ) for additional information.  We apologize for any confusion while we are in transition. 

West Coast Phone: 949-226-8342
East Coast Phone: 732-226-3113


IRS is cracking down on abusive Roth conversion scams:

FROCO (Financed Roth Conversion Strategy)- consists of a sale of an annuity with high surrender charges to the IRA. The IRA is then converted but due to the high surrender charges, the amount converted is substantially less than the account value making the converted amount appear much smaller and thus the tax due on conversion much less than it would be at the proper value. Once the annuity is in the Roth IRA, the account value magically springs back to its original value and thus the majority of tax is avoided. This is a scam and the IRS has issued a permanent injunction against it's promoter.

Value shifting: IRS ruling states, "certain value-shifting transactions that are designed to avoid the statutory limits on contributions to a Roth IRA have been identified as listed transactions, and the purported tax benefits from such transactions will be challenged."

Roth Restructure- A major CPA firm charged $120,000 for to help set up multiple shell corporations that were used solely for the purpose to shift the value of a pre-tax IRA to a Roth IRA. While the IRS did not get the taxpayers on the income tax which would have been due to the conversion because the statute of limitations on filing the 1040 return had passed, they did get them on their failure to file form 5329, which reports additional tax on qualified plans (including IRAs) and other tax favored accounts.

IRS form 5329 is a separate return (although often filed with the 1040) and because the taxpayer did not report what should have been an excess contribution to the Roth IRA, the statue of limitations never started. The taxpayer's attempt to circumvent paying income tax on his Roth IRA conversion results in IRS' imposition of over $500,000 in back taxes, penalties, and interest. Moral of the story, file a 5329 and report the penalty.

If it seems too good to be true, it probably is.

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