Quatloos! > Tax > Tax
Investigation > Xelan
IRS reaches agreement with
Doctors Benefit
Insurance Company, LTD. IR-2005-114, Oct. 3, 2005
WASHINGTON – The Internal Revenue Service announced
today that it has reached an agreement with Doctors
Benefit Insurance Company, Ltd. (“DBIC”),
assignee of xélan Insurance Company Limited.
The agreement resolves various issues relating to group
supplemental insurance programs offered to members
of xélan, The Economic Association of Health
Professionals, through four separate trusts created
by xélan, Inc.
Without admitting or denying wrongdoing or legal liability
under the Internal Revenue Code, DBIC agreed to cease
operations and return approximately $500 million to
participants in the programs. DBIC is being required
to withhold taxes on the payments, which will be taxable
to the participants when received. Additionally, under
the terms of the agreement, DBIC agreed to make a $2.34
million non-deductible payment to the Internal Revenue
Service to resolve issues arising in connection with
its issuance of the supplemental policies.
The agreement included a disclosure authorization
that allowed the IRS to issue this release. Section
6103 of the Internal Revenue Code strictly limits the
IRS in disclosing taxpayer information.
* * * * * * * * * * *
DOCTORS BENEFIT INSURANCE COMPANY, LTD.
Dear DBIC Participant:
After substantial negotiations with the IRS, DBIC
has entered into a settlement agreement with the IRS
regarding its four supplemental insurance policies.
Pursuant to the agreed civil settlement, DBIC will
commence liquidation proceedings, pay $2.34 million
to the IRS, and distribute as follows:
-
Current individual certificate holders
will receive their current certificate values,
calculated as of the date DBIC receives a Certificate
of Intent
to Dissolve from the Barbados Registrar of Companies;
-
Individuals whose policies were terminated
for failure to make minimum premium payments
will receive their certificate values at the
time of termination,
less the applicable percentage that would have
been
deducted if they had kept paying minimum premiums
(4% or 6% of the minimum $4000 premium);
-
Individuals who have already received
their experience adjusted refund benefits will
receive the
difference, if any, between that refund amount
and the certificate value at the time the refund
was calculated.
-
Individuals presently receiving claims
benefits will receive lump sum distributions
rather than continuing
with monthly payments; and there will be
no downward adjustment because of increases to
present value.
After DBIC has met all of its obligations through
the liquidation process, if there are funds left over,
they will be distributed to the individual certificate
holders mentioned above pro-rata. It is contemplated
that these distributions will take place no later than
December 15, 2005.
The IRS will issue a press release which states that
DBIC will cease operations and pay the non-deductible
amount set forth above to the IRS, but also makes clear
that DBIC is not admitting or denying wrongdoing or
legal liability under the Internal Revenue Code. While
not addressed in the IRS press release, the agreement
also resolves the tax treatment of premium payments
for DBIC’s affected certificate holders and their
employers.
Current Certificate Holders
-
Current certificate holders will be subject to
tax on the full amount of the distributions from
DBIC in
the year of receipt.
-
If the income is properly reported in the year
of receipt, the IRS will allow in full the deductions
claimed for premiums paid with respect to the
DBIC supplemental insurance policies for all years
in
which
premiums were paid.
-
The deductions for premiums paid on supplemental
insurance policies will be allowed so long
as the refunds were reported as income in the year
of receipt.
The settlement agreement provides that the certificate
holder will obtain the benefit of a single-level tax
(that is, the distribution is being made directly to
the certificate holder rather than the employer that
paid the premium, so there is no tax effect at the
employer level). Further, the agreement provides that
the distribution will be reportable by the certificate
holder on line 21 of the Form 1040 as “other
income,” which treatment eliminates potential
employment tax consequences (no FICA or FUTA withholding
or contributions need by made by the employer). Finally,
no penalty will be imposed on either the employer or
the certificate holder, nor will any interest be due,
provided the certificate holder timely files and pays
his/her tax for the year in which the distribution
is received.
DBIC has agreed to withhold 20% of the amount paid
in 2005 and/or later years to certificate holders and
to pay this amount over to the IRS at the time of distribution.
The certificate holder will receive from DBIC a 1099MISC
form with appropriate detail of this distribution.
Each certificate holder will be entitled to claim on
his/her tax return for the year of receipt a credit
for taxes paid with respect to the withheld amount.
Given that marginal tax rates exceed 20%, certificate
holders may wish to consult with their tax advisors
regarding whether any additional amounts should be
paid to the IRS as estimated payments for the year
of receipt.
If you have any questions, please feel free to contact
Michael C. Durney, an attorney who represents many
of the certificate holders, and who is familiar with
this settlement. He can be reached by email at office@mdurney.com,
or if necessary, by telephone at 202 965-7744. |
Press Releases
U.S. Department of Justice Press Releases
November
4, 2004 – Court freezes $500 million that Justice
Department alleges was paid to firms running fraudulent
insurance and charity schemes -- http://www.usdoj.gov/opa/pr/2004/November/04_tax_732.htm
Doctors Benefit Insurance Co. Ltd.’s Press
Releases
December
3, 2004 – Press release after U.S. District Judge
ruled against the DOJ’s motion to enter a preliminary
injunction in the case; also, the U.S. District Judge dissolved
the receivership for xelan.
Links to Other Websites Covering the
xelan Case
(links added by request to us)
doctorsbenefit.com
– Information website by Doctors Benefit Insurance
Company, Ltd. – http://doctorsbenefit.com
fraudsandscams.com
– Hosts on-going article: Xelan: A Bitter Pill
for Doctors, by Bill E. Branscum -- http://www.fraudsandscams.com/Xelan.htm
xelanvictims.com
– Informational website for xelan victims by plaintiffs’
attorney Mike Johnston – http://xelanvictims.com
Links to News Articles Covering the
xelan Case
The following are links to newspapers and magazines known
to be actively following the xelan matter:
San
Diego Union Tribune – Various Articles,
by Mike Freeman -- http://www.signonsandiego.com (search
“xelan”)
New
York Times – Various Articles,
by Lynne Browning (search “xelan”)
Forbes
– The doctors’ deductions: Hundreds of doctors
and dentists are undergoing a painful IRS exam, September
20, 2004, by Janet Novak (search “xelan”)
Washington
Post – Various Articles, by
Albert B. Crenshaw (search “xelan”)
Tax
Analysts – Various Articles, by Sheryl
Stratton (search “xelan”)
The DOJ’s Civil Injunction Case
USA v. L. Donald Guess, et al., Case No. 04-CV-2184-W
(U.S.D.Ct.So.Cal. at San Deigo, 2004) – The main U.S.
Department of Justice case against the xelan companies and
promoters.
Follows are some of the key documents filed in the case,
in reverse chronological order by YY-MM-DD. We have omitted
purely administrative filings. The entire file is available
online via Pacer at http://pacer.casd.uscourts.gov/
Notice
of dismissal 2004-12-16.pdf
Ord
(Final) on Prelim Inj 2004-12-15.pdf
04-11-30_USAReplyMemo.pdf
04-11-24_RecPrelimReport_Truncated.pdf
04-11-24_RecPrelimReport_Full.pdf
04-11-24_OrdApptAttyRec.pdf
04-11-24_IntervenAppInjunct.pdf
04-11-23_DebtSumBkrpStatus.pdf
04-11-19_xelanOppInj.pdf
04-11-19_RobertsMemoRespShowCause.pdf
04-11-19_OppXelanFound.pdf
04-11-19_MellonMemoRespInj.pdf
04-11-19_GuestResponseInj.pdf
04-11-19_DrsBenInsCo-MemoRespPI.pdf
04-11-19_Decl-Zimbl.pdf
04-11-19_Decl-Wakefield.pdf
04-11-19_Decl-Pettinger.pdf
04-11-19_Decl-Patton.pdf
04-11-04_BuckRespShowCause.pdf
04-10-29_USAComplaint.pdf
The Selznick Case
Selznick, et al., v. Xelan, Inc., et al., Case No.
04-CV-1038-L (U.S.D.Ct.So.Cal. at San Deigo, 2004) –
Civil lawsuit by xelan client for fraud, etc., in connection
with an ERISA plan.
Follows are some of the key documents filed in the case,
in reverse chronological order by YY-MM-DD. We have omitted
purely administrative filings. The entire file is available
online via Pacer at http://pacer.casd.uscourts.gov/
04-08-24_IndyLifeAnswer.pdf
04-07-21_GuessMoDism.pdf
04-07-21_GuessMoDismBr_21Jul04.pdf
04-05-20_Complaint.pdf
Xelan Disability Insurance Trusts Examined
- Xelan of San Diego is under investigation for selling
tax shelters to physician groups nationwide...
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