Facts. In the case of the McGehee Family Clinic, P.A. (McGehee), a C corporation, IRS determined a deficiency in income tax for the tax year ended Mar. 31, 2005, of $16,042 and a Code Sec. 6662A penalty. With respect to Robert Prosser (a shareholder of McGehee), IRS determined a deficiency in income tax for 2004 of $17,500 and a Code Sec. 6662A penalty under $3,500. The principal issue was whether amounts paid by McGehee in connection with the Benistar Plan were deductible. For this issue, the taxpayers agreed to be bound by the decision of the highest court resolving a similar issue regarding Mark Curcio and other taxpayers. In the Tax Court decision in that case, the Court held that taxpayer contributions to a purported multi-employer welfare benefit trust ostensibly to provide life insurance benefits to participants weren't deductible business expenses. See Curcio, TC Memo 2010-115.
The Benistar Plan was crafted to be a multiple-employer welfare benefit trust under Code Sec. 419A(f)(6) providing preretirement life insurance to covered employees. Employers enrolled in Benistar Plan and made contributions to a trust account for the benefit of select employees. In return, Benistar Plan promised to pay death benefits to those employees if they die while employed. Benistar Plan advertised that enrolled employers' contributions were deductible.
Benistar Plan used employers' contributions to acquire one or more life insurance policies on employees covered by the plan. Benistar Plan withdrew from the trust account as necessary to pay the premiums on the underlying policies.
ReplyDeleteFacts. In the case of the McGehee Family Clinic, P.A. (McGehee), a C corporation, IRS determined a deficiency in income tax for the tax year ended Mar. 31, 2005, of $16,042 and a Code Sec. 6662A penalty. With respect to Robert Prosser (a shareholder of McGehee), IRS determined a deficiency in income tax for 2004 of $17,500 and a Code Sec. 6662A penalty under $3,500. The principal issue was whether amounts paid by McGehee in connection with the Benistar Plan were deductible. For this issue, the taxpayers agreed to be bound by the decision of the highest court resolving a similar issue regarding Mark Curcio and other taxpayers. In the Tax Court decision in that case, the Court held that taxpayer contributions to a purported multi-employer welfare benefit trust ostensibly to provide life insurance benefits to participants weren't deductible business expenses. See Curcio, TC Memo 2010-115.
The Benistar Plan was crafted to be a multiple-employer welfare benefit trust under Code Sec. 419A(f)(6) providing preretirement life insurance to covered employees. Employers enrolled in Benistar Plan and made contributions to a trust account for the benefit of select employees. In return, Benistar Plan promised to pay death benefits to those employees if they die while employed. Benistar Plan advertised that enrolled employers' contributions were deductible.
Benistar Plan used employers' contributions to acquire one or more life insurance policies on employees covered by the plan. Benistar Plan withdrew from the trust account as necessary to pay the premiums on the underlying policies.