Organizers of a new lawsuit want to ease the tax burden on policyholders who have received cash and stock as a result of demutualizations.[@@]
A lawyer has filed the suit against the Internal Revenue Service in Federal Claims Court in Washington. The suit is seeking a refund for taxes paid on distributions received when mutual insurance companies converted to stock.
The suit is the latest volley in a debate between the IRS and a group of accountants and lawyers about the valuation of distributions. IRS officials and some private tax advisors disagree about whether a policyholder has a claim to more than the value of his policy when a policyholder-owned mutual insurer demutualizes.
C.D. Ulrich, a Baxter, Minn., accountant who supports the suit, says a court decision in favor of the plaintiff could mean that policyholders who received the distributions as far back as 1986 would not have to pay taxes when they sold the stock. The suit itself cites only taxes paid for the year 2000 and beyond because a statute of limitations applies, Ulrich says.
Ulrich says he is recommending that potential class members protect their legal position by filing for refunds if they have recently sold insurer stock received through demutualizations.
“Anyone who has reported gain based upon the IRS advice that such cash or stock had a zero tax basis should consider filing a refund claim in order that the statute of limitations not be allowed to run on their potential refund prior to the ultimate disposition” of the lawsuit,” Ulrich says.