More Bad News for Holders of Welfare Benefit Plans - Nova Faces Another Legal Setback

"The search (more like an armed assault), which involved between 35 and 50 IRS Criminal Investigation Division agents wearing black Kevlar bullet-proof vests and fully armed with automatic weapons, who herded the employees of the various companies then at the office located at 100 Grist Mill Road into a conference room and illegally searched and interrogated them, was completely over-the-top, unnecessary, and more akin to something that would happen in the movies or the TV show "24" rather than in the small town of Simsbury...", said lawyers for the welfare benefit plan promoters. And so began the battle by Benistar and others to get back documents seized by the IRS last year. In a stipulation filed in federal court last week, the feds get to copy and keep the documents. Bad news for the NOVA folks and bad news for the thousands holding the disputed welfare benefit plans.

Court documents released in the ongoing litigation between NOVA Benefit Plans and the IRS read like a script from a thriller movie. Shortly after the IRS special agents raided the company's headquarters, Benistar 419 Plan & Trust and other entities purportedly related to Wayne Bursey and NOVA filed motions seeking return of the documents seized during the raid.

Although the raid was primarily directed at NOVA and Benistar, federal agents seized records belonging to Grist Mill Partners, Grist Mill Capital, Avon Capital, ARIA LLC, Charter Oak Trust, Avon Trust, USB Client Services, Caroline Financial Group, Rex Insurance Services, BESTCO Benefit Plans, Boston Property Exchange Transfer Company and Lincoln Financial Services and others. The government believes the entities are related.

Included in the documents seized are records belonging to Pettibone Tavern. According to a motion filed by Pettibone, the tavern hosted many famous Americans including George Washington, Ethan Allen and Mark Twain. The tavern is named after the son of Captain Pettibone, "who gave his life on Christmas day in the famous campaign launched from Valley Forge during the American Revolution that led to the founding of this great Country {sic} and American Independence." The motion goes on to state that both Captain Pettibone and his son are "turning in their graves thinking that Federal agents of the young country he dies for would illegally seize... tax records for the Pettibone Tavern..."

Benistar's court filings may be an interesting from a history standpoint but are not relevant to the real dispute, did NOVA, Benistar, their related entities and their customers violate the Internal Revenue Code?

If tales of the American Revolution and George Washington sitting in a bar were not enough, the motions question why the government would even conduct the raid since the tax return filed for NOVA Benefit Plans shows it "consistently" has no assets and that Benistar Ltd is out of business. Again, not great news for welfare benefit clients who now owe millions to the IRS.

Later in the motion for return of seized property, the lawyers state that the NOVA offices were less than two miles from Tulmeadow Farm, "complete with cows and ice cream" and less than 1 mile from a high school. The connection and relevance of that statement is a complete mystery. Lawyers for the promoters call the search the "most egregious illegal search in the history of the United States." They further states that more agents were present for the "heinous" raid at NOVA than at Ruby Ridge. {Of course, unlike Ruby Ridge no one was injured or killed at NOVA's office.}

Although very colorful, the pleadings do not have much legal substance. And in the end, despite a plea for the court to "sign an emergency order to have the moving van truck turn around forthwith and bring back all of the illegally seized property," the government gets to keep the documents. In the interest of complete accuracy, the government must return the documents but gets to copy them first.

What does all this mean to the thousands of people and small businesses that trusted NOVA, Grist Mill, Benistar and the other welfare benefit plan providers? Two things - first, NOVA probably has no money to pay claims and second, the government has the names and addresses of all the plan holders.

Whatever money Bursey and the plans have is probably going to pay legal fees. There is litigation pending in multiple states and at least one criminal grand jury in Wisconsin probing the plan promoters. That is bad news for the holders of the plans. The aftermath of the raid and criminal investigation will likely spur a great deal of litigation but without any money to pay claims.

There is some good news, however. If you purchased your plan through a stockbroker or investment advisor, you may have some recourse.

The news is also bad because the government now has a complete list of all the clients of NOVA and the other plans. Already the IRS has begun auditing and assessing massive penalties against the holders of these plans - people who relied on NOVA's slick marketing materials and a well crafted legal opinion.

Because the IRS views most of these benefit plans as abusive tax shelters, the penalty can be as high as $200,000 per year!

What should you do if you have a welfare benefit plan? Contact a qualified tax attorney or CPA well versed in welfare benefit plans. The stakes are very, very high. The attorney or CPA should be able to help you unwind the plan, amend returns and help abate the penalties that will certainly follow. An attorney can also represent you if the matter needs to go to tax court or if you elect to bring a lawsuit to recover your losses.

Mahany & Ertl is a full service law firm concentrating in tax matters, asset recovery and white-collar criminal defense. Tax representation includes audit defense, clean up of bad 419 plans, tax collections and criminal investigations. The author is a former tax enforcement agent and prosecutor.

This article was published on 24 Jan 2011 and has been viewed 1345 times
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