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. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  2. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

  3. Here's an idea...how about we MORE heavily regulate the law schools to reduce the surplus of graduates, driving starting salaries up for those new grads, so that we can all pay our insane amount of student loans off in a reasonable amount of time and then be able to afford to do pro bono & low-fee work? I've got friends in other industries, radiology for example, and their schools accept a very limited number of students so there will never be a glut of new grads and everyone's pay stays high. For example, my radiologist friend's school accepted just six new students per year.

  4. I totally agree with John Smith.

  5. An idea that would harm the public good which is protected by licensing. Might as well abolish doctor and health care professions licensing too. Ridiculous. Unrealistic. Would open the floodgates of mischief and abuse. Even veteranarians are licensed. How has deregulation served the public good in banking, for example? Enough ideology already!

ADVERTISEMENT