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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!

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About this Author

Ben F. Wells, Dinsmore Shohl, Wealth Planning Lawyer
Partner

 

Ben Wells is a Partner in the Corporate Department and is Chair of the firm's Tax, Benefits and Wealth Planning Practice Group. He leads the firm's Fringe Benefits Committee and is a member of its Practice Management Council. Over a period of more than 25 years, Ben has advised and counseled clients on a full range of issues relating to employee benefits and executive compensation.

Ben works with Fortune 500 companies, privately held employers, not-for-profit employers, state and local governmental entities, health care providers, private equity investors, ERISA plan...

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