'Equity' Split-Dollar Arrangements in Light of New IRS Interpretation

Brody, Lawrence; Althauser, Lucinda
June 1996
Journal of Financial Planning;Jun96, Vol. 9 Issue 3, p26
Academic Journal
This article discusses the income tax treatment of split-dollar arrangements in the perspective of new Internal Revenue Service (IRS) ruling. Since the IRS issued Revenue Ruling 64- 328, 1964-2 C.B. II, which originated the current income tax treatment of split-dollar arrangements, these arrangements have taken many forms, defined by the parties to the arrangement and their respective rights and obligations in the policy. One such form, a so-called "equity" split-dollar arrangement provides that, upon the employee's death or earlier termination of the arrangement, the employer will be repaid from the cash value or death benefit an amount equal only to its premium contributions; the employee (or his or her beneficiary) will receive the balance of the cash value or the proceeds. In Technical Advice Memorandum TAM 9604001, issued January 26, 1996, the IRS addressed the tax issues involved in such arrangements. TAM 9604001 should be viewed primarily as an indication of the IRS's possible thinking, nor as a statement of the substantive law. Before this issue is ultimately resolved by the IRS, it will have to address some possible arguments against taxing the equity. united states


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