Accountant wins tax fight against IRS
WASHINGTON - While it took seven years, Charles Ulrich did something many people dream about, but few succeed at: He beat the IRS in a tax dispute.
Not only that, but tax experts say potentially millions of other taxpayers could benefit.
The accountant from Baxter, Minn., challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies. A federal court recently agreed with his interpretation.
The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as "demutualization."
Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.
The IRS held that the recipients hadn't paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.
That didn't sound right to Ulrich, 72. He began researching the issue in 2001, and concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.
Some people who'd paid taxes contacted Ulrich and asked him to file refund requests.
One of Ulrich's clients, Eugene Fisher, sued the IRS in February 2004 after being denied a refund.
Judge Francis Allegra of the Court of Federal Claims in Washington sided with Fisher in an Aug. 6 decision.
A spokesman for the Justice Department said the government hasn't decided whether to appeal.