From IR-2007-170, Oct. 17, 2007:
The Internal Revenue Service and the Treasury Department cautioned taxpayers about participating in certain trust arrangements being sold to professional corporations and other small businesses as welfare benefit funds and identified some of the arrangements as listed transactions.
There are many legitimate welfare benefit funds that provide benefits, such as health insurance and life insurance, to employees and retirees. However, the arrangements the IRS is cautioning employers about primarily benefit the owners or other key employees of businesses, sometimes in the form of distributions of cash, loans, or life insurance policies.
“The guidance targets specific abuses involving a limited group of arrangements that claim to be welfare benefit funds,” said Donald L. Korb, Chief Counsel for the IRS. “Today’s action sends a strong signal that these abusive schemes must stop.”
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