Recently by Mark Nestmann: Questions, We Get Questions…
I just completed a four-month ordeal, courtesy of our friends at the Internal Revenue Service.
Last year, I purchased a foreign variable annuity policy. Since U.S. persons who purchase foreign annuities must pay a 1% excise tax, I dutifully wrote a check for this amount. With the check I enclosed a completed copy of IRS Form 720 and sent it off to the United States Treasury. Form 720 is a “Quarterly Federal Excise Tax Return.” It’s used for a myriad of tax payments, including – almost as an afterthought, it seems – a 1% excise tax on “life insurance, sickness and accident policies, and annuity contracts.”
Three weeks later, the fun began. I received a letter from the IRS requesting my taxpayer identification number. This was despite the fact that the instructions for Form 720 stipulate that anyone making a one-time filing of this form enter their Social Security number (SSN) on the form.
The letter informed me that the IRS had received a payment associated with Form 720, but that it didn’t know how to apply it as I had not provided a taxpayer ID number. I could either apply for a taxpayer ID number, or call a department at the IRS with the imaginative name of the “Entity Control Unit” for further assistance.
I dialed the number and to my surprise I immediately reached a human. The IRS representative was helpful but couldn’t understand why I hadn’t listed a taxpayer ID number on Form 720. When I pointed out that the instructions had told me to use my SSN for a one-time filing, he admitted that procedure was correct. But, he also observed that Form 720 was used more by businesses than individuals. For that reason, the IRS computer system was set up to deal with taxpayer ID numbers in association with Form 720, not SSNs. He asked me to fax documentation of the payment, and told me he would try to have the payment credited properly.
Three weeks later, I received another letter from the IRS. This time, was addressed to a domestic LLC that I own. The letter informed me that there the IRS was assessing a deficiency against the LLC equal to the payment I had made with Form 720, plus penalties and interest. The letter gave me another number to contact for assistance.
I once again contacted the Entity Control Unit. I also called the number on the notice of deficiency. I faxed both IRS departments the full details of the payment. I was again assured all was well, and that the payment would be properly credited “soon.”
Three more weeks passed. The day before I was to leave on an international business trip, another letter arrived from the IRS. This letter was a notice of intent to levy against my assets for the entire amount of the payment I had already sent to the IRS, plus additional penalties and interest. There was yet another IRS contact number listed.
Once again, I contacted the Entity Control Unit and the IRS contact number on the notice to levy. Both offices assured me I had nothing to worry about. I could safely go on my business trip and not be concerned that when I returned, the IRS would start seizing assets.
So…I left. And when I returned, I was happy to find acknowledgement that the IRS had credited my original payment to my SSN, as I had originally requested.
In this case, there was a happy ending. The IRS finally found my payment and credited it properly. However, I could have avoided the entire ordeal, which took up at least eight hours of my time, by simply applying online for an employer ID number, as Form 720 suggests.
If I ever buy another foreign annuity policy, that’s what I’ll do first. And I suggest you do the same, if you purchase one.
Reprinted with permission from The Sovereign Society.
Mark Nestmann is a journalist with more than 20 years of investigative experience and is a charter member of The Sovereign Society's Council of Experts. He has authored over a dozen books and many additional reports on wealth preservation, privacy and offshore investing. Mark serves as president of his own international consulting firm, The Nestmann Group, Ltd. The Nestmann Group provides international wealth preservation services for high-net worth individuals. Mark is an Associate Member of the American Bar Association (member of subcommittee on Foreign Activities of U.S. Taxpayers, Committee on Taxation) and member of the Society of Professional Journalists. In 2005, he was awarded a Masters of Laws (LL.M) degree in international tax law at the Vienna (Austria) University of Economics and Business Administration.