ILNews

Summary judgment reversed in retroactive tax case

Back to TopCommentsE-mailPrintBookmark and Share

Finding a genuine issue of material fact as to when a company’s owners could have discovered that their plans investing in cash value life insurance were actually taxable, the Indiana Court of Appeals reversed summary judgment in favor of the consultant who advised the company’s owners to invest in those plans.

Richard Yarger and Robert O’Brien, owners and operators of Custom Radio Corp. and sole employees of Custom Management Group, appealed summary judgment in favor of Actuaries & Benefit Consultants Inc. and John Fogle. Fogle provided services to Yarger and O’Brien from 1995 to 2004, telling the men that their investments in two specific Welfare Benefit Plans would be tax-deductible.

The plans were designed to comply with 26 U.S.C. Section 419(A)(f)(6) so they would be tax-deductible, but in July 2003, the IRS issued final regulations with regard to that subsection that rendered Yarger’s and O’Brien’s plans noncompliant. As a result, their contributions were retroactively taxable. In February 2004, Fogle recommended that Custom Management switch to a single employer plan, which Custom Radio’s CPA handled.

After being audited by the IRS in March 2008, Yarger and O’Brien were found to owe nearly $750,000 in back taxes, penalties and interest. They settled with the IRS to avoid penalties. In October 2010, after signing the settlement agreements, the two men sued Fogle and his company alleging negligent provision of consulting services and breach of oral contract.

The trial court granted the defendants’ motions for summary judgment, ruling the applicable statutes of limitations had expired.

In Custom Radio Corp., Custom Management Group, Inc., Richard Yarger and Robert O'Brien v. Actuaries & Benefit Consultants, Inc., and John M. Fogle, 32A01-1303-CC-143, Yarger and O’Brien argued that the statutes of limitations didn’t begin until they signed the agreements with the IRS because they didn’t know their damages, but the Court of Appeals found this argument to be misplaced. Their causes of action accrued and the statutes of limitation began to run on the date they knew or, through the exercise of ordinary diligence, could have discovered that their Welfare Benefit Plans were non-compliant with Subsection 419(A)(f)(6) and that their plan contributions were retroactively taxable.

The question is whether they could have discovered this by April 30, 2004. The parties dispute whether Fogle told Yarger there would be no adverse tax consequences if Custom Management switched to a single employer plan. Fogle also said he told Yarger in February 2004 that the IRS had issued final regulations with respect to the subsection in question, but Yarger testified he was unaware of the final regulations and didn’t understand what the terms “experience rated” and “listed transactions” used by Fogle meant until they were audited.

The case is remanded for further proceedings.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Indianapolis employers harassment among minorities AFRICAN Americans needs to be discussed the metro Indianapolis area is horrible when it comes to harassing African American employees especially in the local healthcare facilities. Racially profiling in the workplace is an major issue. Please make it better because I'm many civil rights leaders would come here and justify that Indiana is a state the WORKS only applies to Caucasian Americans especially in Hamilton county. Indiana targets African Americans in the workplace so when governor pence is trying to convince people to vote for him this would be awesome publicity for the Presidency Elections.

  2. Wishing Mary Willis only God's best, and superhuman strength, as she attempts to right a ship that too often strays far off course. May she never suffer this personal affect, as some do who attempt to change a broken system: https://www.youtube.com/watch?v=QojajMsd2nE

  3. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  4. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  5. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

ADVERTISEMENT