Curcio v. Comm'r of Internal Revenue, No. 10-3578 (2d Cir. 2012)Annotate this Case
The 419 Plan was established as a multiple-employer welfare benefit plan, 26 U.S.C. 419A(f)(6). Businesses that enroll contribute to an account, which acquires and pays premiums on life insurance policies for covered employees. Each covered employee determines the type of insurance purchased on his behalf. Participating businesses can choose the number of years for which contributions will be required to fully pay for benefits. The Plan is listed as beneficiary on each policy and passes the death benefit to the covered employee. Participating businesses can withdraw at any time. Testimony indicated that "the beauty" of the Plan "is that you can put away extra money in good times” though the premium is not due, “get a tax deduction today and we don't put the premium in for years to come." Owners of four businesses, enrolled in the Plan, contributed hundreds of thousands of dollars and claimed tax deductions, although only the four owners and a stepson were covered. The IRS determined that the payments were not "ordinary and necessary" business expenses, which resulted in additional pass-through income on which the owners had not paid taxes. The tax court held that the owners owed deficiency payments and accuracy-related penalties. The Second Circuit affirmed.