Life insurance fiddles were the fiddles du jour back in the ‘90s. The game was either split-dollar (company paid for insurance on “key” person, and took business deduction), or employee benefit plan claimed to be qualified (thus tax-exempt) but wasn’t.

Playing lead fiddle was Benjamin B. Lecompte III and Cathleen B. Lecompte, 2015 T. C. Memo. 39, filed 3/10/15, but Cathy was just along for the ride, as she appears pro se, while Doc Ben has a few lawyers for backup.

This fiddle was orchestrated by Tracy Sunderlage. Judge Halpern explains: “The plan (and, presumably, others like it) were promoted, organized, and administered by Tracy L. Sunderlage, against whom the United States obtained a permanent injunction in 2012, presumably enjoining him from promoting such plans. Mr. Sunderlage operated through Professional Benefit Trust, Ltd. (PBT), of which he was the chief executive officer.” 2015 T. C. memo. 39, at p. 4.

Doc Ben stashed his $7.8 million life insurance policy in a multi-employer (10 or more) pension and benefit plan in 1990 or 1991 (and it may not matter which year), but switched around 2002 to a single employer plan.

You may remember that around 2002 IRS blew up the split-dollar and similar life insurance fiddles. See my blogpost “The Split”, 8/29/12. But Doc Ben always claimed that, whatever plan he was in, it was always tax-exempt.

IRS said, no, the plans were disqualified and therefore taxable to Doc Ben under Section 402(b)(1) from the get-go.

But, says Doc Ben if that’s so, then the money was mine back in the ‘90s, and those are all closed years.

No, says Judge Halpern, you extended the SOL for the 2002 and forward years, and the IRS never asserted in Court that you got income from the life insurance deal in the ‘90s, so no equitable estoppel.

Howbeit, to foist the life insurance plan income on Doc Ben, IRS needs to assert more than that the plan was a phony shelter; IRS needs to show the Section 83 vested-and-not-subject-to-forfeiture and “set aside and exempt from creditors” stuff. None of that is in evidence (neither Doc Ben nor IRS put in the actual plan text).

So Doc Ben’s try at summary J on the SOL issue fails.

Now Doc Ben’s lawyers make a second stab at summary J (partial, this time) in the same motion. That’s a Rule 54 no-no: one and only one motion at a time. That’s a rock on which many lawyers, used to omnibus motions in State and most Federal Courts, run aground.

But Judge Halpern wants to cut to the cliché, so he goes for it.

Doc Ben’s lawyers want Judge Halpern to absolve them of the duty of consistency. That rule says that when a taxpayer takes a position in a closed year, they can’t reverse themselves in an open year to IRS’s detriment. In other words, you chose it, you’re stuck with it; sort of son-of-estoppel.

There is, however, an exception. What would tax law be without exceptions?

“An exception exists, however, in that the doctrine is not applicable to pure questions of law, as opposed to questions of fact and mixed questions of fact and law.” 2015 T. C. Memo. 39, at p. 17.

And what exactly are Doc Ben’s attorneys asserting? Even IRS is confused.

Judge Halpern clarifies: “Respondent is not quite correct where, in the answer, he avers that petitioners now allege that any income received pursuant to the plan was received in 1990. That is not their allegation. Petitioners aver that, if the plan constituted an illegal tax shelter, as respondent now admits, ‘then under IRC Section 61 the life insurance policy owned by the Plan should have been income to Petitioners in 1990, * * * [when the] insurance was first acquired.’ Petitioners, however, dispute that the plan constituted an illegal tax shelter. They have constantly taken the position that the acquisition of the life insurance policy by the plan and payment of premiums did not cause them to realize income. Unless and until petitioners contradict that position, there is no inconsistency that they may be dutybound to forgo.” 2015 T. C. Memo. 39, at p. 17.

Hey, whatever, says Judge Halpern, I’m not making that call.

“…we have insufficient information about the plan to determine whether, assuming petitioners should have reported plan-related income for 1990, their failure to do so was a mistake of law or, maybe, a mistake of fact or a mistake with respect to a mixed question of law and fact.” 2015 T. C. Memo. 39, at p. 18.

So let’s have a trial. Or maybe put in the necessary papers on yet another motion for summary J.

Remember the first-year law school summary J rule. Put in all your evidence; marshal and lay bare your proofs. Don’t count on your inferences, however brilliant you think they are at three o’clock in the morning, to get your clients summary J.