Tax Court Upholds IRS, Another Taxpayer Falls Prey To 419 Welfare Benefit Plan Scam

Many small business owners or doctors have lost money in a 419 plan. The IRS considers most of these plans to be abusive tax shelters. Unfortunately, quite an industry developed over the last decade selling these plans to unwary consumers. The promoters claim that the plan is a legitimate way to invest money without paying taxes. These plans were often marketed through seminars and sometimes by insurance agents and accountants.

The “lucky” participants simply made a lousy investment in unneeded insurance. The rest, however, either received a huge tax bill from the IRS or found they were unable to get back their money when needed. The really unlucky both lost their money and had to pay the IRS. A recent case from the United States Tax Court once again points out the perils in 419 welfare benefit plans. (If you have invested in a similar tax shelter such as a Chapter 79 captive insurance company, 412 plan or shark finned CLATs, keep reading. The same advice probably pertains to you as well.)

The newest decision involves Dr. Jerald White, a physician from Tennessee. He and his wife contributed $200,000 a year to a so-called xelan 419 plan. When xélan pulled the plug on their plan, he converted his plan to one operated by Millennium.

xélan was a membership organization for physicians. It’s stated mission was to offer insurance products to its members. One of their offerings was a “Tax Reduction Program.” Dr. White and his wife signed up and invested $200,000 per year of pre tax dollars. Unlike some of the 419 plans, which involved outright theft, the xelan plan required a significant amount of paperwork and a legal opinion to even join. In other words, it appeared legitimate.

It was not. How the Whites got scammed and how they lost their battle with the IRS is a story worth repeating. There are plenty of lessons to be learned for anyone stuck in one of these or similar plans.

Continue reading the article here


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