Yesterday, the IRS issued a press release announcing the issuance of final regulations governing the taxation of split-dollar life insurance arrangements and the issuance of Revenue Ruling 2003-105 declaring that “certain prior administrative guidance on split-dollar life insurance arrangements is now obsolete.” The press release gives a summary of the new rules:
The final regulations provide that the tax treatment of split-dollar life insurance arrangements will be determined under one of two sets of rules, depending on who owns the policy. If the executive owns the policy, the employer’s premium payments are treated as loans to the executive. Consequently, unless the executive is required to pay the employer market-rate interest on the loan, the executive will be taxed on the difference between market-rate interest and the actual interest. If the employer is the owner, the employer’s premium payments are treated as providing taxable economic benefits to the executive. The economic benefits include the executive’s interest in the policy cash value and current life insurance protection.
More on this later . . .