Attorney-at-Law

INVENTIVE

In Uncategorized on 04/28/2016 at 16:04

Ya gotta admit, he’s inventive. I’m talking about Michael D. Brown, flying insurance salesman. He first starred in my blogpost “Not Ready For Prime Time,” 12/3/13, which see. Mike was a dollar-splitter and high-flyer.

But Mike has apparently fallen on hard times, and owes the Feds $33.5 million (barring one year still at issue thirteen years later). That’s the tale of Michael D. Brown and Mary Brown, 2016 T. C. Memo. 82, filed 4/28/16, Judge Cohen picking up the story.

Mike claims he has no steady income, and needs an installment plan. Oh, and the Feds have a jeopardy deficiency assessment and liens out on Mike and Mary.

“Prompted by the amount of petitioners’ liability and IRS-determined factors such as petitioner’s foreign bank accounts in tax haven jurisdictions, his concealment of assets through nominees, and his having listed petitioners’ personal residence for sale at $17.7 million, the IRS decided to make a jeopardy assessment regarding the years in issue.” 2016 T. C. Memo. 82, at p. 3.

Of course, Mike was appealing everything. His counsel told Appeals all Mike has was the $5 million in equity in his home (which was held in a family trust). But he did have a proposal to pay over 15 (count ‘em, 15) years.

Judge Cohen: “The first five pages of the proposal outlined how the arrangement would work, as follows in part:

“Typically, a policy is purchased from the elderly person at a discount from the death benefit (thus, giving the elderly person the opportunity to spend or invest the cash during their lifetime) and then packaged by the purchaser into a portfolio of such policies.  The portfolio can then be sold on the open market to investors.

“A typical portfolio consists of approximately 10 policies with an aggregate death benefit of approximately $50 million.  The average age of the insured individuals is typically around 82 years, with an average life expectancy of about 8 years.  (Obviously, some of the insured individuals will die in less than 8 years and some will live longer than 8 years.)  An investor who purchases a portfolio of policies can either take a risk as to the mortality rate of the insured individuals, or the investor can purchase insurance, known as Mortality Protection Insurance Coverage (“MPIC”), which will insure that 75% of the forecasted death benefit will be paid out in each of the first 15 years of the MPIC coverage.

“The cost to acquire a $100 million portfolio is around $10 million and the cost of the MPIC coverage on such a portfolio is around $2 million.  Bank financing from a bank in Germany, North Channel Bank, is available to cover half of those costs.  In addition, the bank financing will also cover 100% of the premiums that will be due on the policies.

“The document went on to explain that insurance payment proceeds would be distributed as determined by two contracts, a Securities Account Control and Custodian Agreement (SACCA), which would retain Wells Fargo Bank to act as a custodian of the proceeds, and an Intercreditor and Security Agreement.  These agreements would cause the insurance funds to be distributed in the following priority: (1) Wells Fargo Bank fees; (2) pro rata repayment of the bank loan, including interest; (3) reimbursement to the MPIC insurer if death benefits were to exceed MPIC insurance payments already made; (4) additional payment on the bank loan if the loan-to-value ratio goes below 50%; and (5) distribution to the holder of the Net Insurance Benefit (NIB) that, under these circumstances, would most likely be a Luxembourg entity known as a “SARL” that is indirectly controlled by the underlying investor.  The example projected an expected return of $33.8 million over a 15-year period, which, at a 3% discount rate, would have a net present value of approximately $26.15 million, an amount estimated to be about the same as petitioners’ current tax liability.” 2016 T. C. Memo. 82, at pp. 7-9.

Mike would buy this metziah (please pardon an arcane technical term, but you get the idea) with two $6 million loans he would get from a bank and an unidentified source.

Although I love it (the smoke-and-mirrors are glorious), the SO kicked the proposed deal.

I’ll spare you the rest. Basically, it fails because IRS doesn’t get paid within the ten year limit.

I must add that I have been approached to arrange the sale of the insurance on my own life in a similar deal. Never happened. The buyer said I was too young and too healthy.

That’s what blogging this stuff does for you, keeps you young and healthy.

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