Most people dream of golfing, fishing or playing with their grandchildren at the end of a long career, not picking a fight with the Internal Revenue Service (search).

Not so for Charles Ulrich (search), a certified public accountant in Baxter, Minn., who has spent 45 years in the field. Now, he is battling the nation's tax collectors over life insurance.

Ulrich is driven by the belief that, since 1999, as many as 15 million people paid too much tax on stock or cash they received when their mutual insurance companies, owned by policyholders, reorganized and became publicly traded companies.

Policyholders have received billions of dollars in stock and cash from insurers that went through the conversion.

"Initially, I was the only CPA in the country who raised this issue, and, of course, I took a lot of ridicule and abuse," Ulrich said in a telephone interview.

He was viewed, he said, as "some hick CPA out in rural Minnesota who, even if he knew something about what he's saying, there's no way he's going to beat city hall."

Ulrich wants a federal court to let a class-action lawsuit go forward and force the IRS to re-examine the taxation of these stock and cash payments. More than 20 companies have gone through the reorganization process, known as demutualization (search).

Based on rulings in the 1970s, the IRS generally holds that a policyholder owes capital gains tax (search) on the entire value of the stock or cash distributed. The agency maintains that policyholders paid nothing to acquire the stock or cash payments disbursed when a life insurance company reorganizes.

When selling ordinary stocks, taxpayers can subtract their cost from the fair market value of the stock when it is sold and then pay tax on the difference. Without any cost assigned to the cash or shares coming from an insurance reorganization, the taxpayer owes capital gains tax on the entire value.

Ulrich said those policyholders did not get something for nothing. They paid premiums that gave them a share of ownership, and the stock or cash payment they received from the company is nothing more than a return of those premiums and should not be taxed as a capital gain, he contends.

Some insurance experts say while the appropriate level of taxation can be debated, Ulrich has a point.

"The bottom line is that I think it (the IRS) is incorrect," said Joseph Belth, insurance professor emeritus at Indiana University. "It just doesn't make any sense to me."

Belth, who writes a monthly insurance newsletter, has offered an alternative calculation that would relieve individuals who get the shares of some taxation.

"Unfortunately, it's a complex issue but nonetheless an important one," said Brendan Bridgeland, policy director for the Center for Insurance Research (search) in Cambridge, Mass. "It does involve the transfer of billions of dollars."

Bridgeland said he finds the IRS position "very harsh, out of proportion" and inconsistent with tax laws passed in the 1980s that recognized that mutual insurance policyholders have an ownership interest in their insurance companies.

Gordon Pehrson Jr. worked through the tax issues in the 1970s as part of a team of private lawyers hired by the first insurance company that demutualized. "We set the pattern," he said.

Pehrson, now an adviser in venture capital and insurance, said it's not illogical to conclude that policyholders should be able to avoid taxes on at least some of the cash or stock returned to them.

"That was always an open question," he said. "I don't think that's a bad argument."

Ulrich ran into the issue when his own insurance company, Indianapolis Life (search), reorganized in 2001.

"My gut reaction told me, hey, this insurance company is not giving me something for nothing," he said.