On October 9, 2013, United States Attorneys for the Central District of California and the United States Department of Justice filed a complaint seeking to permanently enjoin Kenneth Elliott, Sea Nine Associates, and others from promoting participation in, or managing, voluntary employee beneficiary association (“VEBA”) plans. According to the government, the defendants promoted “a scheme in which [the defendants] sell to customers owning small, often closely-held companies, participation in VEBA plans … and claim that customers can, through the contributions their businesses make to VEBA plan administered or operated by the Defendants, fund for their employees (and more often than not themselves) a valuable insurance-oriented welfare benefit while claiming all of the VEBA contributions as a federal income tax deduction.” The government further alleges that the defendants “have continuted to falsely claim that the VEBA plans in fact comply with the tax laws, and manage and promote them to this day despite their documented knowledge of the illegality of the plans.”
According to the complaint, Defendant Kenneth Elliott has admitted that there are over 200 participants in Sea Nine VEBA plans. The government claims that it has completed audits of 41 taxpayers and, in those audits, it has assessed nearly $13.875 million in tax deficiencies. In addition to stopping the defendants’ promotion of the plan, the government is asking the federal district court to order the defendants to produce a list of all of their customers, including names, addresses, and social security numbers.
Sea Nine VEBA participants who have not yet been subject to an IRS audit should seek the assistance of an experienced tax attorney. Tax attorney Michael E. Lloyd will be hosting a conference call on Friday, February 14, at 3 PM EST to discuss recent Sea Nine developments. Sea Nine participants interested in participating in the call should RSVP to email@example.com for call-in instructions.