Discussion:Officer's Life Insurance - IRC Sec 101(j)

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Discussion Forum Index --> Advanced Tax Questions --> Officer's Life Insurance - IRC Sec 101(j)


Discussion Forum Index --> Tax Questions --> Officer's Life Insurance - IRC Sec 101(j)

Jeff-Ohio (talk|edits) said:

6 November 2013
It 'was' my understanding that a corporation that pays the life insurance premium for an officer (<50% owner or a non-owner) could not deduct the premium, but then also would not pay tax on the benefits if the officer passed.

Apparently, from what I am reading I am wrong. The corporation doesn't deduct the premium, but still pays tax on the insurance IF this 'consent' form is not filed along with form 8925.

It's a little confusing - hoping someone has some insight - thanks in advance.

Ref: IRC 101(j) and 6039I; 2009-48

Jeff-Ohio (talk|edits) said:

6 November 2013
In addition, there is a clause that states with written notice, the 'business intends to ensure the life of the employee and that coverage may continue after the employee TERMINATES employment...'

Is that odd???!?! You can continue to cover a key employee who has left the company and when he/she passes, the corp receives the benefit?

BoulderDoug (talk|edits) said:

6 November 2013
I remember there was also an ACE issue in college in the mid 90s. Not sure if that is still the case.

Ckenefick (talk|edits) said:

6 November 2013
This is not a new law, and your client might be grandfathered. But note, changes to the policy could create an 8925 filing/notice obligation where there was none before. Hopefully, you actually pay attention to those checklists you complete prior to finalizing a return.

This law has already been challenged in court, at least once, and the taxpayer, who didn't follow the rules, still won. Context was a small business - where the insured knew he was being covered, seeing that he had to have a physical for that purpose, blood test, etc.

This crappy law was created b/c a lot of large employers were buying life insurance on employee lives and were not telling them about it. Leading some to believe, that employer may have a sinister motive to do away with the employee, unbeknownst to the employee.

Jeff-Ohio (talk|edits) said:

6 November 2013
So going forward, a client must complete the consent form and file the 8925.

This allows them to pay the premium, but it's still non-deductible, correct?

The only way it becomes 'tax-free', is if the benefitiaries are heirs of the employee.

Am I reading that correctly?

Can you amend to file the 8925?

Jeff-Ohio (talk|edits) said:

6 November 2013
I guess I'm just confused as to why all the fuss about the consent form and 8925 now if nothing changed and it's an old law.

Ckenefick (talk|edits) said:

6 November 2013
Jeff, I'm an employer. Unbeknownst to you, as an employee, I take out a policy on your life.

Don't you think you should be aware of it?

So going forward, a client must complete the consent form and file the 8925.

Unless the policy was issued prior to the inception of this law. It's not a brand new law, but it's not all that old either.

This allows them to pay the premium, but it's still non-deductible, correct?

Employer can pay the premium regardless of anything. This law has nothing to do with an employer being allowed to pay the premium or with the fact that the payment is non-deductible. The law has to do with the taxation of the benefit on the back end.

The only way it becomes 'tax-free', is if the benefitiaries are heirs of the employee.

No. It's tax free, to the employer, when the employer receives it, if the 8925 has been filed and the notice has been obtained. And, if you read the court case I referenced, you'd see that it might even be tax-free even if the employer doesn't comply with these silly rules, when they pertain to a small business setting wherein the employee knows that the employer is taking out a policy on his life.

Smokeytax (talk|edits) said:

7 November 2013
I believe the form 8925 requirement came about when the IRS found that a large retail chain had continued to purchase life insurance on many former low wage employees without telling them, & then reaped the tax free income when any of the died.

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