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August 19, 2002 at 08:00 PM
NU Online News Service, Aug. 19, 11:05 a.m. — Washington
A new Treasury Department notice seeks to stop the spread of what the department calls “an abusive tax avoidance transaction using split-dollar life insurance.”
Treasury Notice 2002-59 deals with split-dollar life insurance arrangements, including reverse split-dollar, where the parties attempt to avoid taxes by using inappropriately high current term insurance rates, prepayment of premiums or other techniques to understate the value of taxable policy benefits, Treasury says.
“The notice makes clear that using any scheme to understate the value of benefits for income or gift tax purposes won’t be respected,” says Pamela Olson, acting assistant secretary for tax policy.
David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA is reviewing the notice.
According to Notice 2002-59, the use of techniques such as inappropriately high current term insurance rates and prepayment of premiums to understate the value of policy benefits does not conform to, and is not permitted by, any published guidance.
In addition, the notice addresses the use of two available methods of determining the value of current life insurance protection under a split-dollar arrangement.
Specifically, the notice says that in 2001, Treasury published a new table of one-year term premiums to determine the value of current life insurance protection on a single life provided under a split-dollar policy.
Alternatively, the notice says, taxpayers can determine the value of current life insurance protection by using the insurance company’s lower published premium rates that are available to all standard risks.
