Opens in a new tab

Accountant fights IRS and wins!

August 25, 2008

Yeah, that headline looks like it came straight out of weekly News of the Weird, but it’s true.

Plus it’s much catchier than "Demutualization tax battle finally ends."

Both are accurate. The decision more than two decades ago by insurance companies to demutualize and the accountant who for most of that period fought the IRS over the tax consequences to individual policy holders due to that corporate shift has been resolved in favor of taxpayers.

And some folks now might finally reap the tax refund rewards of accountant Charles Ulrich’s efforts.

Insurance_policy_2
Demutualization details:
For all of us non-insurance folks, here’s some background. Back in the 1980s, 30 mutual insurance companies converted to stock
companies to get their hands on more capital. Around 30 million policyholders of these companies received cash or stock in the demutualiztions.

The IRS said the recipients hadn’t paid anything for the shares
and therefore owed taxes on the full amount when they sold them. Cash
distributions they received, said the IRS, also were fully taxable.

Ulrich, an accountant form Baxter, Minn., took issue with
the IRS position. Since 2001, he’s been working to change the
agency’s mind, arguing that policyholders had paid for their ownership rights
through their premiums so the distributions should have been tax-free.

‘Illogical’ IRS: Earlier this month, Judge Francis M. Allegra of the Court of Federal Claims in Washington agreed with Ulrich’s line of reasoning, calling the IRS’ view "illogical."

In the particular taxpayer case that went before Allegra, the IRS has been ordered to refund that plaintiff $5,725 in taxes plus interest.

Based on this case, others policy/share holders also likely are due refunds, but it’s unclear just how large that demutualized pool is. There’s a three-year statute of limitations in contested tax claims.

Still, props have to be given to Ulrich, now 72. Such tenaciousness in the face of any foe, much less one as overwhelming as the IRS, is to be applauded.

The victorious accountant told the Associated Press
that he will prepare refund requests, for a fee (c’mon; the guy
deserves to make a living after all his effort here!), for interested
taxpayers, but said the principle is more important to
him.

"I think it’s important that taxpayers’ rights be protected," Ulrich said. "We should have had a Boston Tea Party over this."

More info: You can read more on the case at WebCPA, Demutualization.org, TaxProf and Roth & Company’s Tax Update Blog.

Click here to see Allegra’s ruling.

And if you’re an affected taxpayer, read more on what steps to take next at Ulrich’s Web site Demutualization.biz.

Share:

The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

Latest Posts
IRS sending refunds to families that claimed adoption tax credit carryforwards

October 18, 2026

Tax reform changes to the adoption tax credit meant some families didn’t get the new…

Read More
TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
Leave your comment