Remedies for abusive tax shelter schemes

Steve Burgess, an insurance expert on 412(i) pension and 419 welfare benefit plans, says that there are remedies for those who have been injured by an insurance company's abusive tax shelter schemes. He told us, “Basically, if we can get the policy out of the trust, then we can go to the insurance company and negotiate with them to refund the money back to the client.”

While insurance companies are very willing to negotiate Internal Revenue Code Section 412(i) pension plan matters, we asked Burgess whether they are as willing to negotiate Internal Revenue Code Section 419 matters. He told us:

They're not as willing because the welfare benefit trust did not become a reportable transaction until 2007. My prediction is that we’ll see a huge spike in the number of people getting audited by the IRS for these plans about six months from now. However, it takes a little bit of time for them to catch up, and once they do, then I think the insurance companies will be a lot more willing to negotiate.

Another issue is that although some insurance companies will not allow their policies to be sold into welfare benefit trusts, agents have figured out how to get around that limitation so that they can still sell a policy, get the commission and not inform the insurance company of what they’ve done.

Preparing a case against insurers

When preparing a case against insurance companies, Burgess says that there are two main issues – paying taxes on the plan which were supposed to be tax-free and finding out that individuals and companies no longer have any rights in the policy because a trust now owns it. In order to successfully prepare a case, clients should obtain copies of sales materials, copies of illustrations that were presented, copies of letters from the IRS or from law firms that are endorsing these plans.

If you've been the victim of a fraudulent or abusive tax shelter scheme, contact an experienced pension fraud attorney to discuss your situation and evaluate what remedies may be available to you.