IRS
UPDATES PS 58 TABLE FOR VALUING
LIFE INSURANCE
With the issuance of Notice
2001-10 and Table 2001, the IRS
has closed the door on pretense,
hypocrisy and lies with respect
to imputing to employees the
taxable cost of life insurance
contracts purchased under split
dollar arrangements and
retirement plans. Under the
prior rules and the table found
in Revenue Ruling ("RR") 55-747,
an insurance company could use
lower rates if they offered a
lower-cost one-year term policy.
No inquiry was made as to
whether or not the insurance
company actually sold the
coverage.
Table 2001 uses updated
mortality, which results in
significantly less income
inclusion with respect to life
insurance protection purchased
under a qualified plan than the
amount under the prior table,
but generally higher than the
amount currently being employed
under such phantom policies. To
be able to use its own rates in
lieu of the published table, the
insurance company now must be
able to demonstrate that it
actually offered and sold such
policies to the general public
during the period of time for
which the rates are being
employed. It is believed that
the updated table, and the new
disincentive will result in
insurance companies simply using
the new published rates under
Table 2001. And those rates are
not bad.
For example, a participant age
40 with $100,000 of net
insurance protection, would have
had reportable P.S. 58 costs of
$442 under RR 55-747, but only
$110 of P.S. 58 costs under
Table 2001. Table 2001 may be
used immediately, or insurance
companies and administrators may
continue using RR 55-747 for
taxable years ending on or
before December 31, 2001. For
purchases of life insurance in
2001, either the table in RR
55-747 or Table 2001 may be used
to calculate P.S. 58 costs, but
for purchases of life insurance
after 2001, only the Table 2001
(or a subsequent replacement
table) may be used. |
