By ARTHUR D. POSTAL
Lawyers for life insurance policyholders who received stock or cash as part of demutualizations are asking a federal court to establish a cost basis for tax purposes on the distributions that is far higher than insisted upon by the IRS.
Lawyers for the Seymour Nagan Irrevocable Trust said in a court filing March 10 with the U.S. Court of Federal Claims in Washington, D.C., that they would like to narrow the scope of a lawsuit filed with the court on Dec. 1, 2004, to defer certifying the suit as a class action until after the basic issue of the cost basis to policyholders from demutualizations is adjudicated.
“Disposition of this motion will expedite the disposition of this entire matter, since the only substantive tax disagreement between the parties is over the issue covered by this motion,” the filing says. “In the event that partial summary judgment is granted as requested, plaintiff would then contemplate filing a motion for class certification.” The suit was filed by the Raby Law Office of Tempe, Ariz. The case is being heard by Judge George W. Miller.
The lawyers for the trust contend in their lawsuit that little case law on the issue should lead the court to determine that the cost can be valued in two separate ways.
The lawyers for the Nagan trust contend that the value of the distributions for tax purposes should be either the lesser of the fair market value of the stock as of the date received or the net premiums paid on the life insurance policy giving rise to the stock distribution.