Presidential Life Corp. has disclosed that a foundation overseen by its former founder and CEO filed a tax return that failed to comply with Federal rules, according to a document filed with the U.S. Securities and Exchange Commission.

According to the document filed by Presidential Life, the Kurz Family Foundation Ltd. admits its 2008 federal tax return did not comply with rules in the Internal Revenue Code. Herbert Kurz, the former founder and CEO of Presidential Life Corp., Nyack, N.Y., is a director of the foundation.

The foundation’s 2008 tax return discloses “potential noncompliance with various sections of the Internal Revenue Code, including Sections 4941 [taxes on self-dealing], 4943 [taxes on excess business holdings] and 4945 [taxes on taxable expenditures],” the SEC filing states.

An investigation of the 2007 tax return for the Kurz Family Foundation, which holds about 21% of Presidential Life outstanding common stock, reveals a pattern of self-dealing and use of charitable assets for non-charitable personal expenses, according to document filed by the company.

The foundation included the tax return in an application submitted to the New York State Insurance Department about foundation efforts to acquire a controlling interest in Presidential Life.

A special committee of independent directors of the company has begun an internal investigation and has retained independent counsel. Presidential Life earlier informed the New York State Insurance Department of its investigation and says it is cooperating with an investigation being conducted by the department.

Upon discovering irregularities in the foundation’s 2007 tax return, Presidential Life’s board removed Kurz as chairman and Charles Snyder, who prepared the return, as its chief financial officer.

Kurz, who is 89, is trying to reinstate himself as Presidential Life’s CEO, pushing aside the current president and CEO, who assumed the position in May after the company adopted a succession plan that Kurz approved. Kurz also is seeking to replace Presidential Life’s other directors with his own hand-picked slate.

The special committee concluded in a report filed Dec. 8 with the SEC that Kurz and the foundation likely engaged in improper self-dealing; made taxable expenditures; and used foundation assets “in a manner that is inconsistent with its charitable status” under Section 501(c)(3) of the Internal Revenue Code.

The committee concluded that Kurz probably used foundation money to make excessive payments to the foundation’s directors, most of whom are family members, and to pay for personal medical expenses, other personal expenses, tuition for at least one family member and for friends and children of friends, and questionable consulting fees paid to family members and friends.

The New York insurance department has issued a subpoena to the foundation over certain expenditures made by the foundation, the committee says.

In a consent statement dated Dec. 4 and filed with the SEC, Kurz said the leadership changes he seeks are needed to realign Presidential Life with stockholder interests and restore the carrier to “the path of prosperity.”

The company’s independent directors committee answered with a letter to shareholders, dated Dec. 7, stating that Kurz’s attempts to reinsert himself into the business activities of the company at age 89 are “impractical” and “not in the best interests” of the company. The committee said Kurz’ efforts are “a misguided response” to his personal unhappiness about no longer running the company he founded.

“We do not believe stockholders should humor Mr. Kurz, nor simply ignore the issue of his advanced age,” the committee said. “The independent committee believes that, due to his years, Mr. Kurz is no longer capable of the demands of full-time, hands-on management of a public company.”

Kurz will turn 90 in March 2010.

The committee also asserts that Kurz never had a strategic plan while he headed the company and that he still has not offered a plan detailing how he and his nominees would deliver greater value for stockholders than the company’s existing board and management team.

The committee adds that, during his tenure as CEO, Kurz gave “scant attention” to implementing good corporate governance standards. Since relinquishing the CEO position in April 2008, the committee notes, Presidential Life’s board has made “significant” corporate governance improvements.

Kurz says he intends to answer the charges in the course of the investigations. He declined to provide additional comments.