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!