Decision On Demutualization Cost Basis Sought

The IRS, in a response in February to the suit, and in a 1979 Notice, has been treating the distributions as having no cost basis; in other words, the tax basis when the distribution is in cash or when the stock is sold is the total amount of the distribution.

In the brief in the Nagan lawsuit, its lawyers contend that the advice provided policyholders based on the IRS policy “was based on IRS dicta and not based upon any specific statute, regulation or case law.”

To the contrary, the last brief by the Trusts trustee, Eugene A Fisher, says, “I realized that it was likely that the trusts tax basis in the Sun Financial Services shares was their fair market value when those shares were received.”

The court case is based on the belief of several lawyers and accountants who have made the project their lifes work that the IRS contention that the distributions have no cost basis for tax purposes is inappropriate.

One of the leaders of the group is C.D. Ulrich, a Baxter, Minn., CPA. Billions of dollars in distributions are involved, Ulrich contends, through the demutualizations over the past decade of 22 life insurance companies, by his estimate.

These include Unum, Equitable Life, Guarantee Mutual, State Mutual (First
American Financial Life), Farm Family, Mutual of New York, Standard
Insurance, Manulife, Mutual Life of Canada (Clarica), Canada Life, Industrial Alliance, John Hancock, Metropolitan Life, Sun Life of Canada, Central Life Assurance (AmerUs), Indianapolis Life, Phoenix Home
Life, Principal Mutual, Anthem Life, Provident Mutual, Prudential and General American Mutual Holding Company, which was sold to MetLife through its liquidation by the Missouri Department of Insurance.

Reproduced from National Underwriter Edition, March 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.