IRS Clarifies Tax Treatment of Split-Dollar Life Insurance
Journal of Retirement Planning (04/01) Vol. 4, No. 2 p.45; Ackermann, Matt

The Internal Revenue Service (IRS) has further defined its position on the tax treatment of equity and other split-dollar life insurance arrangements between employers and workers. Current IRS regulations concerning split-dollar arrangements require that payments issued by an employer in a split-dollar arrangement be counted as a loan, investment in the contract for the employer's own account, or as compensation payments. The IRS will accept parties' characterization of an employer's payments under split-dollar arrangement under the following conditions: the characterization is not inconsistent with the substance of the arrangement; the characterization has been consistently followed by the parties; and the economic benefits that are conferred upon the employee are accounted for in a manner that is consistent with the characterization of the payments. Payments may also be characterized as loans, but the tax consequences will be determined under Code Sec. 7872.


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