Washington (August 20, 2002) -- The Treasury Department and the IRS are acting to stop the spread of an abusive tax avoidance transaction using split-dollar life insurance.
A split-dollar life insurance arrangement involves two parties agreeing to split the premiums or benefits, or both, of a life insurance policy. These arrangements are used to compensate employees or to make gifts to one or more family members.
Notice 2002-59 deals with split-dollar life insurance arrangements (including so-called "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.
"The Notice makes clear that using any scheme to understate the value of benefits for income or gift tax purposes won't be respected," according to Pamela F. Olson, Acting Assistant Secretary of the Treasury for Tax Policy.
--Electronic Accountant Newswire staff
