The suit, filed by the Dallas law firm of Diamond McCarthy in the U.S. District Court for the Northern District of Texas, lists 17 plaintiffs and eight insurance company and consultant defendants. The defendants are charged with fraud and conspiracy and with misrepresenting to employers that the schemes would be found to be proper to fund a qualified defined benefit plan.
“Defendants knew or should have known that this arrangement would likely be deemed an abusive tax shelter by the IRS, but Defendants were financially incentivized by the prospect of reaping enormous premiums and commissions from the sale of these Insurance Policies,” the suit charges.
The suit claims the arrangements have left the plaintiff employers the target of Internal Revenue Service (IRS) tax audits (or are likely to), which the suit claims has caused them “to incur substantial audit-related fees and expenses. In addition, these IRS audits have resulted (or will likely result) in significant tax liability for Plaintiffs, including disallowed deductions for the enormous premiums paid to Defendants, penalties, and interest.”
Insurance company defendants include:
- Indianapolis Life Insurance Company,
- Hartford Life and Annuity Insurance Company,
- Pacific Life Insurance Company, and
- American General Life Insurance Company.
Pension marking/consultant defendants include:
- Economic Concepts, Inc.,
- ECI Pension Services, LLC, and
- Kenneth R. Hartstein, CEO of Economic Concepts and ECI.
St. Louis law firm Bryan Cave and partner Richard C. Smith are named in the suit as “related parties.”
The suit, which seeks class action status, asks for compensatory and punitive damages. A copy is available here.
The Treasury Department 412(i) regulations are available here.