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Lone accountant takes on IRS and wins
Posted by: Lance on Sunday, August 24, 2008

And millions of us may benefit.
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.

All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.

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, an accountant for 49 years. He began researching the issue in 2001, when he received shares from two companies, Prudential and Indianapolis Life.

Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.
Funny, a family member gave me some shares he inherited from Met Life's demutualization just last night to help him with. The man is a hero in my book. The IRS's position was illogical, but they often make calling them on such matters too burdensome for most to fight. Good for him.

Update: Linda Morgan in the comments takes the time to detail exactly how ugly the IRS has behaved in this matter. Sadly, it isn't an exception, but standard procedure. RTWT.
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Previous Comments to this Post 

The whole article is fascinating. And disturbing. This hints at how slimy is the beast that Ulrich wrestled:
the IRS wasn’t pleased with Ulrich, accusing him of promoting abusive tax shelters and demanding the names of his clients, which he said he refused to provide.
Not to mention careless and arbitrary:
some people who’d paid [the disputed] taxes contacted Ulrich [prior to this ruling] and asked him to file refund requests, which he did, for a fee. Some of those refunds were granted, he said. Tax experts say the IRS doesn’t always closely scrutinize small refunds.
And so preposterously unfair as to hold the cheated taxpayers to a statute of limitations for claiming refunds:
It’s not clear how many people could benefit from the ruling. Many of the 30 million policyholders are probably too late to seek refunds, since claims must be filed within three years of the April 15 tax deadline. That means the statute of limitations for taxes paid for 2004 ran out April 15, 2008.
Until it, at our expense, figures out how to erase the changes Ulrich has wrought:
The government could appeal the ruling and likely will fight future refund claims, perhaps hoping for a different outcome in a separate court, tax experts said.
Swell. But God bless Ulrich and people like him anyway, and all the more.
Written By: Linda Morgan
URL: http://
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Written By: 7

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