Asset Protection Society

Protecting Your Net Worth

Home Taxpayer fights the IRS and wins, learn how this can affect you!

The IRS Is Your Number One Creditor

When discussing asset protection, many people get caught up in mindset of only thinking about protecting their assets against negligence lawsuits.  That certainly is important as one large lawsuit can literally wipe out your wealth; but, many times, we forget to protect against the other creditors that are much more likely to take our money, creditors such as the IRS, the stock market, and expenses for long-term care.

As I’m sure you’ll agree, the number one “guaranteed” creditor every year for everyone is the IRS.  The IRS takes our money every single year whereas a negligence lawsuit might never happen to us. Therefore, it is vitally important to protect against this number one creditor.

How can we protect ourselves from the IRS?

By using any one of the following tools (not an exhaustive list)

401(k)/profit sharing plans, IRAs, or Defined benefit plans (although for many, maximum funding is not recommended as doing so can be tax hostile depending on your situation).

Captive Insurance Companies can help save on income, gift, and estate taxes.

Section 79

Capital Split Dollar Plans

Cash Value Life Insurance (and specifically Revolutionary Life)

Charitable Planning


If you are interested in CICs or the very unique and powerful Capital Split Dollar Plan, you should consider coming to the 2nd Annual Asset Protection Society Forum in October.  To learn more, please click here.

A taxpayer did us all a favor

Many of our newsletters alert you to those in the industry who are seeking to harm you, usually by taking your assets.  This newsletter is different in that it serves to tell you about one individual in the industry who has taken steps to help you.  His name, Craig Ulrich.

Craig Ulrich, a 72 year old accountant who has been practicing for 49 years took on the IRS and won.  The reason I am taking the time to tell you about this victory is because you or your clients may benefit from his brave fight and victory.

How it all started

It began in the late 1990’s when several mutual life insurance companies became publicly traded corporations.  This process is called demutualization.  Demutualization is defined by as “the process of changing corporate structure from a mutual fund company to some other form, such as a limited liability or corporation.”  When mutual life insurance companies change from a private mutual fund company to a publically traded company, they must compensate their previous owners (you or your clients if you were a policy holder at the time of demutualization) for your loss of ownership interests.  Ulrich was affected by this when he received shares from Prudential and Indianapolis Life when they demutualized and was taxed on the amount of the share and any gain upon the sale of his shares.

IRS’ argument

The IRS argued that insurance policy holders never paid anything for the shares and that when a policy holder received the compensation for their loss of ownership in the company, they should be taxed on the full amount of the shares and any compensation received.

Ulrich’s argument

Ulrich argued, that policy holders paid for the ownership rights when life insurance premiums were paid and that the compensation received should not be taxed.  Here is how this may affect you and your clients, depending upon the statute of limitations, you or your client might have been taxed on the wrong amount.  Under the IRS’ view, a policy holder should be taxed on what the shares were worth and what they were sold at.  Ulrich argued that a policy holder should only be taxed on the gain because a life insurance premium had already paid for the value of the share.  So, he argued, that you should only be taxed on the gain when a life insurance company demutualizes


Mutual insurance company distributes share worth $75, the recipient then sells them for $80.  There is a $5 gain.

IRS incorrectly argued taxes should be paid on the $80.

Ulrich argued and won that the taxpayer should only have to pay taxes on the $5 gain.

The court agreed, Ulrich and others have been granted refunds for taxes paid beyond the gains.  This ruling affects thousands of policy holders from various life insurance companies.   You should check your files and see if you can help yourself and/or your clients with this knowledge.  Please be aware of the statute of limitations which is three years from the date of filing.


I thought this newsletter was important for a couple of reasons:

(1) as stated, you and your clients may have been affected by this and, if within the statute of limitations, may stand to get a refund from the IRS; and

(2) this reinforces my last newsletter about the importance of asset protection planning from all creditors even your annual, semi-annual, or quarterly creditor, the IRS.


Jason K. Ruggerio, J.D.

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