Newton-based Benistar faces charges of investment fraud

Five plaintiffs have filed suit in Suffolk Superior Court in Boston seeking to recover at least $9 million which they claim a company lost in an improper stock market gamble in 2000.

Cahaly vs. Benistar Property Exchange Trust Co. Inc. et. al. is being heard in the business session of Superior Court. The plaintiffs are Gail Cahaly, Jeffrey Johnston, Byron Darling, Massachusetts Lumber Co. Inc. and Joseph Iantosca.

The plaintiffs were real estate owners looking for a way to defer property-tax obligations through so-called like-kind transactions. According to Internal Revenue code 1031, those transactions require an intermediary � in this case Newton-based Benistar Property Exchange Trust Co. Inc.

Under the code, once the funds are deposited with the intermediary, the real estate owner must find a new piece of property to purchase within a 180-day window and direct the intermediary to buy it. If no replacement property is found, the intermediary returns the money from the original sale back to the real estate owner, who must then pay the required taxes.

The plaintiffs claim Benistar committed fraud because the company promised a certain percentage return it did not ultimately deliver. ​

Read more here

419, 412i, Captive Insurance and section 79 plans continue to get large IRS fines. 

Life insurance agents recently have started pushing the newest variety of high ticket items. After the IRS has almost put 419 plans out of business and severely curtailed abusive 412i plans they needed another way to sell large commission life insurance policies. Many of the promoters of the 419 and 412i plans are now promoting section 79 and captive insurance plans. They claim that these plans allow businesses to tax deduct life insurance. These promoters as in the past claim, that most of the benefits would be for the business owners. I have been an expert witness in many cases against these abusive plans and my side has never lost a case. Recently my office has been receiving over fifty calls per month from people that are being threatened with large IRS fines. Most of these people (including CPAs) do not understand why this is happening. These fines are primarily the result of greed. Insurance company, insurance agent, plan promoter and even IRS greed. Insurance companies are always looking for ways to sell large amounts of life insurance. Taxpayers are constantly looking for larger tax deductions. Insurance agents want to earn large life insurance commissions. The IRS has started additional enforcement action against taxpayers and accountants.

Read more here

Simsbury Man Sentenced to 3 Years for Fraud

IRS Audits 419, 412i, Captive Insurance Plans With Life Insurance, and Section 79 Scams

The IRS started auditing 419 plans in the ‘90s, and then continued going after 412i and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions.
In a recent Tax Court Case, Curcio v. Commissioner (TC Memo 2010-115), the Tax Court ruled that an investment in an employee welfare benefit plan marketed under the name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible. Curcio did not appear to have been decided yet at the time McGehee was argued. The McGehee opinion (Case No. 10-102) (United 
States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant issues.
Taxpayers and their representatives should be aware that the Service has disallowed deductions for contributions to these arrangements. The IRS is cracking down on small business owners who participate in tax reduction insurance plans and the brokers who sold them. Some of these plans include defined benefit retirement plans, IRAs, or even 401(k) plans with life insurance. Read more here