IRS Wins COLI Court Case
National Underwriter (Life/Health) (10/23/00) Vol. 104, No. 43 p.1; Bell, Allison

Employers that used corporate-owned life insurance (COLI) as a tax-break during the late 1980s and early 1990s may have to pay back taxes, according to a U.S. District Court ruling. In his judgment for the case of Internal Revenue Service v. C.M. Holdings Inc., U.S. District Court Judge Murray Schwartz found that the Internal Revenue Service (IRS) should be allowed to recoup more than $6.3 million in unpaid taxes and penalties from businesses that received the tax break as a result of using COLI. The ruling goes on to say that "an employer can keep COLI interest deductions if it bought COLI coverage to protect itself against the cost of losing key employees, but it has no right to keep the deductions if it simply used COLI programs to cut its taxes." The defense argued that Camelot wanted to use COLI income to finance a health insurance plan that covered part-time and full-time employees. However, Judge Schwartz said Camelot's claims were bogus on the grounds that its insurer and its insurance agency concentrated on tax concerns, not insurance benefits.


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