• Member Statistics

    • 827,928 Colleagues-to-Date [Sponsored by a generous R&D grant from iMBA, Inc.]
  • David E. Marcinko [Editor-in-Chief]

    As a former Dean and appointed University Professor and Endowed Department Chair, Dr. David Edward Marcinko MBA was a NYSE broker and investment banker for a decade who was respected for his unique perspectives, balanced contrarian thinking and measured judgment to influence key decision makers in strategic education, health economics, finance, investing and public policy management.

    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. David E. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics trade journals and publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

    Later, Dr. Marcinko was a vital and recruited BOD  member of several innovative companies like Physicians Nexus, First Global Financial Advisors and the Physician Services Group Inc; as well as mentor and coach for Deloitte-Touche and other start-up firms in Silicon Valley, CA.

    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

    Dr. David E. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA, FPA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”.

    Marcinko is “ex-officio” and R&D Scholar-on-Sabbatical for iMBA, Inc. who was recently appointed to the MedBlob® [military encrypted medical data warehouse and health information exchange] Advisory Board.



  • ME-P Information & Content Channels

  • ME-P Archives Silo [2006 – 2020]

  • Ann Miller RN MHA [Managing Editor]

    USNews.com, Reuters.com,
    News Alloy.com,
    and Congress.org

    Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

    Product Details

    Product Details

    Product Details


    New "Self-Directed" Study Option SinceJanuary 1st, 2020
  • Most Recent ME-Ps

  • PodiatryPrep.org

    Lower Extremity Trauma
    [Click on Image to Enlarge]

  • ME-P Free Advertising Consultation

    The “Medical Executive-Post” is about connecting doctors, health care executives and modern consulting advisors. It’s about free-enterprise, business, practice, policy, personal financial planning and wealth building capitalism. We have an attitude that’s independent, outspoken, intelligent and so Next-Gen; often edgy, usually controversial. And, our consultants “got fly”, just like U. Read it! Write it! Post it! “Medical Executive-Post”. Call or email us for your FREE advertising and sales consultation TODAY [770.448.0769]

    Product Details

    Product Details

  • Medical & Surgical e-Consent Forms

  • iMBA R&D Services

    Commission a Subject Matter Expert Report [$2500-$9999]January 1st, 2020
    Medical Clinic Valuations * Endowment Fund Management * Health Capital Formation * Investment Policy Statement Analysis * Provider Contracting & Negotiations * Marketplace Competition * Revenue Cycle Enhancements; and more! HEALTHCARE FINANCIAL INDUSTRIAL COMPLEX
  • iMBA Inc., OFFICES

    Suite #5901 Wilbanks Drive, Norcross, Georgia, 30092 USA [1.770.448.0769]. Our location is real and we are now virtually enabled to assist new long distance clients and out-of-town colleagues.

  • ME-P Publishing


    If you want the opportunity to work with leading health care industry insiders, innovators and watchers, the “ME-P” may be right for you? We are unbiased and operate at the nexus of theoretical and applied R&D. Collaborate with us and you’ll put your brand in front of a smart & tightly focused demographic; one at the forefront of our emerging healthcare free marketplace of informed and professional “movers and shakers.” Our Ad Rate Card is available upon request [770-448-0769].

  • Reader Comments, Quips, Opinions, News & Updates

  • Start-Up Advice for Businesses, DRs and Entrepreneurs

    ImageProxy “Providing Management, Financial and Business Solutions for Modernity”
  • Up-Trending ME-Ps

  • Capitalism and Free Enterprise Advocacy

    Whether you’re a mature CXO, physician or start-up entrepreneur in need of management, financial, HR or business planning information on free markets and competition, the "Medical Executive-Post” is the online place to meet for Capitalism 2.0 collaboration. Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds. THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
  • OIG Fraud Warnings

    Beware of health insurance marketplace scams OIG's Most Wanted Fugitives at oig.hhs.gov

Welfare Benefit Trust Plans for Physicians?

 Join Our Mailing List


“Hall of Fame” for Egregious Investment Advice

By David K. Luke MIM, Certified Medical Planner™ – candidate

[Physician Financial Advisor – Fee Only]



Physicians unfortunately often become unwitting targets of some very egregious investment advice. Usually it involves an investment product with an imbedded fat commission just waiting to be deposited in a “financial advisor’s” bank account.

In the “Hall of Fame” of egregious investment advice is the Welfare Benefit Trust. About 10 years ago, while I was working for a top five national brokerage firm (this was before my fee-only days when I was still on the “dark side”) our internal Insurance Products Department at the brokerage firm’s head office presented an amazing investment product. This “Welfare Benefit Trust” we were told should be shown to our profitable small business owners as a cure for their every ill caused by paying too much taxes. A Welfare Benefit Trust essentially works like this:

  • The business provides a fringe benefit for their employees, such as health insurance and life insurance.
  • The benefit is established in the name of a trust and funded with a cash value life insurance policy
  • Here is the gravy: the entire amount deposited into the trust (insurance policy) is tax deductible to the company, and
  • The owners of the company can withdraw the cash value from the policy in later years tax-free.

Yes, the holy grail of tax avoidance has been achieved: tax deductible up front and tax-free when you withdraw. By the way, if you are not familiar with such investments there is a reason. They are not legal by the tax code. Physician practices, as well as other small and mid-sized businesses, became buyers into these welfare benefit trusts as they were sold as a way for the practice to “protect” a large profit in a certain year from being taxed. We were told it was not uncommon for a single transaction into a welfare benefit trust to be $200,000 to $300,000 dollars or more in a single premium payment, yielding typically a six-figure commission check.

A few years later the gig was up as it became obvious these could not be tax legal. My understanding is that most medical practices that bought these “unrolled” them when the major brokerage firms realized that avarice got the best of them and stopped selling them. In 2007, the IRS and the Treasury Department issued a formal warning cautioning “about certain Trust Arrangements Sold as Welfare Benefit Funds”. The IRS called these “abusive schemes” and made such a transaction what the IRS lovingly calls a “listed transaction”. Essentially, a listed transaction is a transaction that the IRS has determined to be a tax avoidance transaction. The IRS even keeps these Listed Transactions on their website, listed in chronological order from 1 to 34. Welfare Benefit Trusts is #33.

Good Welfare Benefit Trusts

First of all, it is important to mention that “there are many legitimate welfare benefit funds that provide benefits” according to the IRS. Internal Revenue Code Sections 419 and 419A spell out the rules allowing employers to make tax-deductible contributions to Welfare Benefit Plans. There is nothing wrong with these plans and no mystery to them. After all, a medical practice or any business for that matter is allowed to deduct the costs of doing business as an expense. This includes employee salary and benefits.

VEBAs (Voluntary Employee Benefits Association) have been around since 1928 and are used by employers to provide health, life, disability, education and other benefits for their employees and are the original Welfare Benefit Trusts. When properly established and executed, a VEBA can be a legitimate employee benefit structure. In 2007 the United Auto Workers, in order to relieve the Big 3 Automakers from carrying the liability for their health plans on their accounting books, formed the world’s largest VEBA with over $45 billion in assets.

Bad Welfare Benefit Trusts

However, the IRS does have a problem with Welfare Benefit Plans that are promoted to small business owners as a scheme to avoid taxes and provide medical and life insurance benefits to key employees that in substance primarily serve the owner(s) of the business. These 419 Welfare Benefit Plan schemes claim that the employer’s contributions are deductible under IRC section 419 as ordinary and necessary business expenses, allowing the business owner to provide a life insurance policy for his favorite employee, himself, and accumulate cash value in a life insurance policy.

Lest there be any confusion or debate, IRC 264(a)(1) states:

(a) General rule

No deduction shall be allowed for –

(1) Premiums on any life insurance policy, or endowment or

annuity contract, if the taxpayer is directly or indirectly a

beneficiary under the policy or contract.

While VEBAs have been used properly, as in the UAW example above, unfortunately they are often a front for an abusive tax shelter. In the 1970’s VEBAs were being used by the wealthy as a popular tool for tax reduction and asset protection. In 1984 Congress passed the Deficit Reduction Act, which limited the use of VEBAs. In the 1990’s however VEBAs were structured to give business owners tax benefits not allowed and got back on the IRS radar. Two state medical societies along with a neonatology group practice became test cases by the IRS that helped close those VEBAs with abusive tax structures and purporting to be employee welfare benefit plans: Southern California Medical Professionals Association VEBA, New Jersey Medical Profession Association VEBA and Neonatology Associates, PA. Although the VEBAs claimed to have favorable determination letters, the actual execution of the plan did not comply with the law, mainly by allowing the employees to hold term policies in the plan that could be converted into universal life policies at the same insurer and use the conversion credit account to spring cash value in the policy. This then allowed policyholders to borrow against the UL policy as a supposedly nontaxable source of retirement income, with the repayment of the loan paid out of the policy’s death benefits. (“Making Welfare Plans Work”, Advisor Today, September 2000 P 110). This of course is not allowed under the tax code.

Those that think that they may be in the clear with their abusive tax shelter because:

  1. A large passage of time has occurred since they have owned it
  2. They have a favorable determination letter
  3. Other honorable businesses/ Medical Societies also have the same tax shelter
  4. My insurance agent said it was legal

may want to read the 98-page ruling by the United States Tax Court filed on July 31, 2000 in the case of the above-mentioned Neonatology and related cases. The long arm of the IRS reached back 9 years to 1991, 1992, 1993 disallowing hundreds of thousands of dollars and assessing deficiencies and huge “accuracy-related” tax penalties. Even the doctors that had died since then were not given a break either; their estates and surviving widows were assessed the deficiencies and penalties.

In 2002 the IRS talked Congress into passing new laws basically killing the use of multiple employer 419 plans. Some TPAs (third party administrators) that had set up the multiple employer plans discovered that they could use single employer 419 welfare benefit trusts and VEBAs because Congress forgot to include them when they passed the negative laws shutting done the multiple employer plans. This forced the IRS to issue notices 2007-83 and 2007-84, Rev. Ruling 2007-65 and make welfare benefit trusts listed tax transactions now on the listed tax transactions list. (“Negative IRS Notices On 419 and VEBA Plans” Roccy M. Defrancesco Nov 1, 2007)

Ugly Welfare Benefit Trusts

I call these “Ugly” because these Welfare Benefit Trusts were sold to small business owners after the 2007 IRS listed transaction warning, and after the multiple IRS notices and revenue rulings. The major brokerage firms by 2004 had stopped selling Welfare Benefit Trusts to protect their own financial interests, realizing these were compliance and lawsuit time bombs. The 2007 IRS listed transaction notice along with multiple other notices however did not seem to stop some smaller broker dealer firms and life insurance agents from promoting these.

I have become aware of the fact that Welfare Benefit Trusts that are in violation of the basics of the tax code (unlimited full deduction of premium,  100% tax free distribution to owner of cash value) are still being sold even today and even affecting existing clients. These Welfare Benefit Trusts go by many different names and the insurance agents selling them are using a number of different insurance companies to fund the plan. These plans involve the sale of an insurance policy usually with a six-digit premium that often pays the insurance agent a six-digit commission, so perhaps I should not be surprised that individuals (physicians?) are still being victimized

Conversation with IRS Attorney on Welfare Benefit Trusts

On January 20, 2012 I discussed with Betty Clary, an IRS attorney that helped draft the listed transaction #33 on the IRS website, on what exactly the IRS considers an abusive Welfare Benefit Plan. She stated that, once you take out the fact that the trust cannot be offering a collective bargaining element which is covered by another IRS code, there were three elements they look for:

  1. There has to be a Trust that claims to be providing welfare benefits
  2. There is either a cash value policy involved that offers accumulation or a policy in which money is set aside for a future policy in which accumulation occurs, such as a term policy that can then offer a higher accumulated value.
  3. The plan cannot deduct in any year more than the benefit provided. For example if the plan just provides a death benefit, the most that can be deducted in a year is only the term cost of that benefit, not the entire premium. If the plan offers medical benefits, then only the cost (what was paid out to the employee) for that benefit can be deducted in that year.

I found it interesting that the IRS is pursuing this broader definition as an abusive plan. Betty explained that in the case of a discovered abusive Welfare Benefit Plan, the IRS would disallow the deductions, assert income back to the owner as a distribution of profits, and assess penalties. The courts are clear that you cannot get out of penalties by claiming you are relying on the person that sold you the Welfare Benefit Plan.

What if you currently have a Welfare Benefit Trust for your Practice?

Realizing that someone you trusted has financially devastated you, carelessly misguided you and sold you a bogus tax program in order to pay cash for his new 7 series BMW can be a difficult and rude awakening. After accepting the fact that your Welfare Benefit Plan you have for your practice meets the basic criteria as mentioned in this article as an abusive transaction, I would recommend that you consult an attorney that specializes in pursuing promoters of abusive Welfare Benefit Plans and discuss your options. I have had discussions with Lance Wallach, an accountant and expert witness used in a number of Welfare Benefit Trust cases, which has confirmed to me that you must be proactive. You may be advised to file an IRS form 8886, which is a disclosure form related to prohibited tax shelter transactions. The penalties for failure to file a form 8886 can be stiff. Of course, filing this form will open the Pandora’s Box on your Welfare Benefit Trust to the IRS. Lance has told me that many of these 8886 filings are done incorrectly. An incorrectly filed IRS form is an unfiled IRS form, so please consult a CPA who is experienced in this area. Your attorney that has expertise with Welfare Benefit Trusts will be able to guide you with this. Regarding recourse, according to Lance, most all cases are settled out of court, as the insurance company, the agent, and the agency prefer to avoid the publicity.


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Product DetailsProduct DetailsProduct Details

Product Details  Product Details

Product Details

%d bloggers like this: