Mr. Sarva sent notices to some or all participating employers in the Sea Nine VEBA informing them that “your participation in the VEBA plan is notified to Departement of Justice and Internal Revenue Service.”

Mr. Sarva provides information about how to terminate participation in the Plan and states “I am recommending to all my clients who participated in the VEBA plans, to voluntarily report such amounts on their 2013 tax return and pay with January 15, 2014 estimate the additional tax due.  This is to be paid on “accumulated cash value” in your life insurance policy under the VEBA.”

The issues presented by this are:

• The IRS position on what a taxpayer should do may be different than simply reporting the value of the policy in the 2013 return.
• Taking such action may not prevent an IRS audit, or the imposition of taxes, penalties and/or interest.
• Taxpayers who include amounts on their tax returns that relate to participation in the VEBA should consider whether they need to file IRS Form 8886 to avoid penalties under IRC 6707A.