Vee’s Mktg., Inc. v. United States

Vee’s is a Subchapter S corporation wholly owned by Vee, who reports its income on his own tax returns. Vee sought a refund of $40,000 in penalties that the IRS had assessed because he took deductions for contributions to a benefit plan from 2004-2007 but did not file a Form 8886. In a separate Tax Court suit, the government is arguing that the deductions were improper. Contributions to multi-employer benefit plan, like the Vee's, are deductible unless the plan “maintains experience-rating arrangements with respect to individual employers,” 26 U.S.C. 419A(f)(6). Experience rating means that rather than pooling the risks and contributions of all the employees of the different employer-members to determine benefits, benefits are determined separately for each employer according to that employer’s contributions. If contributions go to purchase life insurance policies that accumulate cash value, the contributions are not tax deductible; such a plan is mainly an investment vehicle rather than insurance. Vee’s plan included no medical benefits. Vee’s contribution in ithe first year was $165,000, but the cost of the term life insurance purchased was only $5,400. The difference was invested to earn interest for and is the property of Vee. The district judge denied a refund. The Seventh Circuit affirmed. Vee’s plan was enough like the plan described in the IRS notice to require lForm 8886. View "Vee's Mktg., Inc. v. United States" on Justia Law