Benistar 419 Plan Services, Inc. Single-handedly Shapes 419 Plan Jurisprudence
by COSGROVE LAW GROUP, LLC
Since its creation in December 1997, the Benistar 419 Plan, has brought much scrutiny to the tax interpretation of 419 plans. Created by Daniel Carpenter, the purpose of the Benistar 419 Plan was to provide life insurance to employees through a company’s contributions to a multiple-employer welfare benefit plan. The Plan initially set itself apart by touting its fully deductible tax features. The IRS, however, has since determined that contributions to Benistar 419 plans do not fit the parameters of §419A(f)(6), as they ultimately maintain separate accounts for each employer enrolled in the plan, and therefore are not tax deductible. As a result, companies were forced to pay tens of thousands of dollars in back taxes, despite tax deduction promises, and the legal world has seen a surge in cases regarding the matter.
In one such case, Mark Curcio and Barbara Curcio, et al. v Commissioner of Internal Revenue, No. 1768-07, 2010 WL 2134321 (U.S. Tax Ct. May 27, 2010), the court set out to determine “whether payments to the Benistar 419 Plan & Trust for employee benefits are ordinary and necessary business expenses under section 162(a).” The court concluded that said contributions did not fulfill the definition of “ordinary and necessary” business expenses. This decision stemmed from the set up of the Plan. “[P]etitioners had the right to receive the value reflected in the underlying insurance policies purchased by Benistar Plan. Peitioners used Benistar Plan to funnel pretax business profits into cash-laden life insurance policies over which they retained control.” The Plan has since been continuously been referred to as an abusive tax shelter, causing plaintiffs in many 419 related cases to question whether Benistar knowingly made misrepresentations to clients.
In Stephen Ouwinga et al. v John Hancock Variable Life Insurance, No. 1:09-cv-60 2010 WL 4386931 (W.D. Mich. Oct. 29, 2010), the plaintiff claimed the Benistar 419 Plan violated RICO, the Racketeer Influenced and Corrupt Organizations Act, which the court subsequently shot down. In Arrow Drilling Co., Inc., et al. v Daniel Carpenter, et al., No. Civ.A. 2:02-CV-09097, 2003 WL 23100808 (E.D. Pa. Sept. 23, 2003), Plaintiffs alleged the Benistar 419 Plan violated ERISA, the Employee Retirement Income Securities Act. Here the court determined that “Plaintiffs are not employer-sponsors, but rather, employers who, acting on behalf of its employees, brought this suit pursuant to ERISA §503.” Since employers cannot sue under ERISA, the court dismissed all ERISA related claims made by Plaintiffs.
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Civil actions commenced in the Superior Court Department on
January 9, 16, 22, and 23, 2001; February 6, 2001; September 20,
2001; and April 30, 2002.
Following review by the Supreme Judicial Court, 451 Mass.
343 (2008), motions for sanctions and for a new trial were heard
by Stephen E. Neel, J.
Anthony R. Zelle for Gail A. Cahaly & others.
Michael B. Keating for the intervener.
1 Jeffrey M. Johnston; Bellemore Associates, LLC;
Massachusetts Lumber Company, Inc.; Joseph Iantosca,
individually and as trustee of the Faxon Heights Apartments
Realty Trust and Fern Realty Trust; and Belridge Corporation.
2 Benistar Ltd.; Benistar Employer Services Trust
Corporation; Benistar Admin. Services, Inc.; Carpenter Financial
Group, LLC; Molly Carpenter; Daniel E. Carpenter (collectively,
the Benistar defendants); Merrill Lynch, Pierce, Fenner & Smith,
Inc.; and U.S. Property Exchange; Bingham McCutchen LLP,
intervener in the sanctions proceedings.
Benistar Leader Daniel Carpenter was arrested, and in June 2008 he was convicted. On Wednesday, close to six years later, he was sentenced. The news release below doesn't mention it, but Carpenter had appealed his initial sentence, and a judgment in his favor was then appealed by prosecutors, who eventually won. READ MORE NOW
More You Should Know
Graham-Bingham Irrevocable Trust et al v. Trudeau et al [We have downloadable decisions or orders for this case]
Filed: April 30, 2012 as 2:2012cv00755
Plaintiff: Graham Bingham Irrevocable Trust , Henry W Dean
Defendant: Donald Trudeau , Greenwich Bay Management LLC
Cause Of Action: Diversity-Breach of Contract
Court: Ninth Circuit › Washington › Washington Western District Court
No. 54: Daniel Carpenter and a Host of Criminal AllegationsDaniel E. Carpenter (Simsbury, CT), attorney and businessman, was scheduled to report to a federal prison on Friday, June 20. His saga involves cases over more than a decade in federal district courts, circuit courts of appeal, and the Supreme Court. Among the federal agencies involved in the cases are the Department of Justice, the Department of Labor, the Department of the Treasury, and the Internal Revenue Service (IRS). Several cases are ongoing despite Carpenter's incarceration.
The Section 1031 Fraud Allegations
Carpenter owned and operated Benistar, Ltd. and its subsidiaries. One Benistar function was to act as an intermediary in Section 1031 property exchanges. That section of the Internal Revenue Code allows the owner of investment property to defer capital gains taxes on the sale of the property by rolling the proceeds of the sale into the purchase of replacement property. However, the tax deferral is lost if the owner (the "exchangor") takes possession of the sale proceeds. Therefore, companies such as Benistar offer to act as an intermediary by holding the proceeds in escrow until the exchangor is ready to close on the replacement property.
Carpenter promoted the services of Benistar by offering to hold the funds safely, pay a small amount of interest, and provide the funds when needed. However, without the knowledge or consent of the exchangors, Carpenter embarked on a highly speculative program of options trading in the hope of generating large gains for himself.
Collection United States Courts Opinions
SuDoc Class Number JU 4.15
Court Type District
Court Name United States District Court Northern District of Illinois
Office Location Chicago
Case Type civil
Nature of Suit Other Contract Actions
Cause 28:1330 Breach of Contract
Party Names Financial Life Services, LLC, Counter Claimant
Avon Capital, LLC, Counter Defendant
The Thomas D Philipsborn Irrevocable Insurance Trust dated July 10, 2005, Counter Defendant
Avon Capital, LLC, Defendant
Benistar Admin Services, Inc., Defendant
Donald Trudeau, Defendant
Andrew I. Philipsborn, Plaintiff
The Thomas D. Philipsborn Irrevocable Insurance Trust, Plaintiff
Financial Life Services, LLC, Third Party Defendant
Andrew Philipsborn, Third Party Defendant
Thomas Philipsborn, Third Party Defendant
Avon Capital, LLC, ThirdParty Plaintiff
Financial Life Services, LLC, ThirdParty Plaintiff
Opinion Filed Date November 18, 2013
Docket Text MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 11/18/2013: For the reasons stated herein, Third-Party Defendant Financial Life Services, LLCs Motion to Dismiss for Lack of Jurisdiction [ECF No. 97] is denied. Fourth-Party Defendants Thomas Philipsborn and Andrew Philipsborns Motion to Dismiss for Failure to State Claim [ECF No. 109] is denied. Status hearing set for 12/11/2013 at 09:00 AM.Mailed notice(wp, )
Abusive Insurance, Welfare Benefit, and Retirement Plans
The A2Z Directory March 2011
The IRS has various task forces auditing all section 419, section 412(i), and other plans that tend to be abusive. Most insurance agents sell these plans. The IRS is looking to raise money and is not looking to correct plans or help taxpayers. The IRS calls accountants, attorneys, and insurance agents “material advisors” and also fines them the same amount, again unless the client’s participation in the transaction is reported. An accountant is a material advisor if he signs the return or gives advice and gets paid. More details can be found on http://www.irs.gov and http://www.vebaplan.com.
Bruce Hink, who has given me written permission to use his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners. What follows is a story about how the IRS fines him each year for being in what they called a listed transaction. Read more here.
419, 412i, Captive Insurance and section 79 plans continue to get large IRS fines.
By Lance Wallach
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.
Taxpayers must report certain transactions to the IRS under Section 6707A of the
tax code, to help detect, deter, and shut down abusive tax shelter activities. For
example, reportable transactions may include participants in 419,412i, or other
insurance plans sold by insurance agents for tax deduction purposes. Other
abusive, listed or reportable transactions could include captive insurance and
Section 79 plans, which are usually sold by insurance agents for tax deductions. Read more here.
California Broker, June 2011
Employee Retirement Plans
By Lance Wallach
412i, 419, Captive Insurance and Section 79
Plans; Buyer Beware
The IRS has been attacking all 419 welfare benefit plans, many 412i retirement plans, captive insurance plans with life insurance in them, and Section 79 plans. IRS is aggressively auditing various plans and calling them “listed transactions,” “abusive tax shelters,” or “reportable transactions,” participation in any of which must be disclosed to the Service. The result has been IRS audits, disallowances, and huge fines for not properly reporting under IRC
6707A. Read More Here.
Real Estate Transfer Turned Fraud Becomes 3 Years in Prison for Connecticut Man
Posted on behalf of the firm on 23 March 2014.
When it comes to the transfer of real estate, there are quite a few very specific laws and regulations, and as one Connecticut man recently found out, the punishments for violating those laws can be severe.
According to sources, Daniel E. Carpenter, 59 year old resident of Simsbury, Connecticut, was recently sentenced to 3 years in prison, and then 3 years of supervised release, as well as a $100,000 fine. The sentence, passed down by U.S. District Court Judge George A. O’Toole, punctuated the end of Carpenter’s 6 year ordeal, in which he was convicted of 19 separate counts of mail and wire fraud.
The convictions reportedly came about after authorities figured out that Carpenter had been involved in illegally handling money for clients, and using their money for illegal purposes while the clients believed they were in tax-deferred real estate exchanges from the months of August through December 2000.
Tax Court Again Takes Dim View of Benistar PlanBY LAURA JEAN KREISSL, PH.D. AND DARLENE PULLIAM, CPA, PH.D.
January 1, 2011
Benistar post-65 retiree benefits administration retiree medical and prescription drug plans solutions Brokers plan administration Retiree Benefit News?
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IRS Hiring Agents in Abusive Transactions Group
Posted: Dec. 10, 2010
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