IRS Scores Another Win in 419A Case
On July 21st, the U.S. Court of Appeals for the 2nd Circuit affirmed the Tax Court’s decision in B.R. DeAngelis M.D. P.C. v. Commissioner, (2nd Cir., Case No. 08-1143-AG). The case involved payments to a “Severance Trust Executive Program Multiple Employer Supplemental Benefit Plan and Trust.” This plan was promoted as a welfare benefits fund that was part of a 10-or-more employer plan described in Code Section 419A(f)(6).
These plans provide “severance” payments which are (according to the IRS) in actuality intended to be a subterfuge to pay excess cash to the owner -- after funding it through life insurance policies. The arrangement purportedly qualifies for a deduction under Code Section 419A(f)(6) because it consists of ten or more separate employers.
The IRS has for many years viewed these arrangements as a scam and aggressively pursues enforcement against them. However, we continue to find instances where clients have had such plans promoted to them. If you are approached by a promoter about such an arrangement -- be very cautious!