Ulrich challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies.
A federal court recently agreed with his interpretation.
The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as "demutualization."
Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.
All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.
The IRS held that the recipients hadn't paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.
Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.
One of Ulrich's clients, Eugene Fisher, a trustee for a Baltimore, Md.-based trust, sued the IRS in February 2004 after being denied a refund.
Judge Francis Allegra of the Court of Federal Claims in Washington sided with Fisher and called the IRS' view "illogical" in an Aug. 6 decision. He ordered the agency to refund $5,725 in taxes plus interest to the trust overseen by Fisher.
The government could appeal the ruling. Charles Miller, a spokesman for the Justice Department, said the government hasn't yet decided whether to appeal.
Still, taxpayers should request refunds if they're eligible, tax experts said, because even if the IRS rejects the claim, doing so extends the deadline for a potential refund for two more years.
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