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Regulation and Compliance > Federal Regulation > IRS

IRS Seeks Comment On Split-Dollar Valuation Proposal

By Steven Brostoff

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NU Online News Service, May 9, 2003, 5:35 p.m. EDT — Washington

The Internal Revenue Service is seeking comments on a proposed method for valuing economic benefits under certain equity split-dollar life insurance arrangements.

The new proposed rule is intended to supplement a still pending 2002 proposed rule regarding taxation of split-dollar arrangements.

The 2002 proposal creates two mutually exclusive regimes for taxation of split-dollar arrangements, a loan regime and an economic benefit regime.

The new proposal deals only with the economic benefit regime, under which the owner of the life insurance contract is treated as providing economic benefits to the non-owner.

The new proposal provides guidance on valuation of split-dollar arrangements under the economic benefits regime.

Under the proposal, the value of the economic benefits provided to the non-owner for a given taxable year equals the cost of any current life insurance protection provided to the non-owner, the amount of policy cash value to which the non-owner has current access, and the value of any other economic benefits provided to the non-owner.

The term “current access” means that portion of the policy cash value that is directly or indirectly accessible to the non-owner, inaccessible to the owner, or inaccessible to the owner’s general creditors.

IRS has scheduled a public hearing on the proposal for July 29, 2003. Requests to speak at the hearing must be received by the IRS by July 8.

In addition, all written comments must be filed by July 8.

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