Despite popular acceptance, the lack of legal and judicial support for dollar splitting agreements has always meant that the IRS has been able to change its approach to taxing dollar splitting agreements simply by issuing new rulings. In recent years, the IRS has indicated that it is reviewing the tax treatment of dollar splitting agreements, and in particular the type of dollar splitting agreements called "split-into-stock dollars." In split dollars of shares, the employer is reimbursed only for premiums paid from the product or in cash. The cash value of the policy ultimately exceeds the employer`s right to reimbursement, and this additional value in the policy is called "policy capital." The IRS was unhappy that police capital had escaped income tax because it viewed police capital as a benefit provided to an employee. However, the IRS had some difficulty in developing a legal theory that would justify imposing this equity. (3) Transfer of the entire contract or the undivided shares contained therein. A transfer of ownership of a life insurance contract (or an undivided interest in such a contract) that forms part of a split-dollar life insurance agreement takes place on the date on which a non-owner becomes the owner (within the meaning of paragraph (c)(c)(1) of this section) of the entire contract or an undivided interest in the contract. (1) In general. Except as otherwise provided in point 3 of paragraph (f) of this Section, any amount received under a life insurance contract that forms part of a split life insurance contract subject to the rules of paragraphs (d) to (g) of this Section (including, but not limited to, the dividend of a policyholder, the proceeds of a specific policy loan in accordance with point (2) of paragraph (e) of this Section); the proceeds of a termination or partial termination of the life insurance contract) to the extent that it is made available directly or indirectly to a non-owner of the life insurance contract, as if that amount had been paid to the holder of the life insurance contract and then paid by the owner to the non-owner. The amount received is taxable to the owner in accordance with the rules of § 72. The non-owner (and the owner for the purposes of gift tax and payroll tax) must consider the amount described in paragraph (e) (3) of this section as a compensation payment, distribution under § 301, capital contribution, gift or other transfer depending on the relationship between the owner and the non-owner. (1) In general.
A split-dollar life insurance agreement is any agreement between an owner and a non-owner of a life insurance policy that meets the following criteria – The estate also asserted that part of the difference between the surrender value of the policy of $9.61 million and the declared value of the deceased`s interest under the split-dollar agreement was: or would have been, already settled as a gift. Therefore, the application of Article 2036(a)(2), Article 2038(a)(1) or Article 2703 would constitute a double counting of these assets in the context of gift and inheritance tax. However, the court noted that (1) the deceased did not report any part of the difference as a gift to MB Trust and (2) both parties agreed that the value of the current life insurance coverage was a gift according to Regs. Section 1.61-22. Thus, no part of the remaining present value at the time of the deceased`s death had been subject to gift tax, since the operating costs of the life insurance coverage had already been deducted from the policy to determine the remaining present value and no part of the remaining present value had been used to pay the costs of the insurance coverage. (ii) To the Owner. Any premium paid by an owner under a split-dollar life insurance agreement subject to the rules in paragraphs (d) to (g) of this section is included in the owner`s investment in the contract under paragraph 72(e)(6). No Reward described in paragraph (d) of this Section or any amount described in paragraph (d) of this Section shall be deductible by the Owner (except as otherwise provided in Article 1.83-6(a)(5)). Any amount paid by a non-owner directly or indirectly to the holder of the life insurance policy for continuous life insurance coverage or for any other economic benefit under the life insurance contract shall be included in the owner`s gross income and shall be included in the owner`s investment in the life insurance contract within the meaning of Article 72(e)(6)(6) (6) (but only to the extent that: which is not otherwise due to payment by payment by B. the owner as a bonus or other consideration for the contract). (1) In general. In the case of fractional life insurance subject to the rules set out in subparagraphs (d) to (g) of this section, the economic benefits shall be treated as if they had been granted to the non-holder of the life insurance contract.
The non-owner (and the owner for gift and income tax purposes) must consider the full value of all economic benefits described in paragraph (d)(d)(2) of this section, less the consideration that the non-owner pays directly or indirectly to the owner for those economic benefits. Depending on the relationship between the owner and the non-owner, the economic benefits may constitute the payment of compensation, distribution under § 301, capital contribution, gift or transfer of a different tax nature. In addition, depending on the relationship between or between a non-owner and one or more other persons (including a non-owner or non-owner), economic benefits may be treated as if they were granted by the owner to the non-owner and thus separately by the non-owner to that other person or person (e.B. as the payment of compensation from an employer to an employee and as a gift from the employee to the child of the employee). The Tax Court concluded that Articles 2036(a)(2) and 2038(a)(1) apply to include the cash surrender value in the testator`s gross discount. In making this finding, the Finance Court cited Powell`s estate3 (which applied Section 2036(a)(2) with respect to the interests of that deceased`s limited partnership in a family limited partnership) and Strangi`s estate.4The court noted that "the rights to terminate and recover at least the surrender value were clearly rights held in relation to another person (MB Trust). to designate both the persons who own or would benefit from the assets transferred under [Article 2036(a)(2)] and to amend, amend, revoke or terminate the transfer under [Article 2038(a)(1)]. The court rejected the estate`s assertion that the deceased did not have the right to terminate the policy because he held that right in collaboration with the MB Trust, which could have prevented him from terminating the dollar splitting agreements. The Court stated that this reasoning would mean that the words "in connection with a person" in paragraph 2036(a)(2) and "in connection with another person" in paragraph 2038(a)(1) made no sense. It appeared to the court that the estate indicated that the deceased should have full control over the MB trust for the purposes of Section 2036(a)(2), but the court stated that the wording of the law did not require unilateral review and that it was not aware of any jurisdiction or other authority supporting the position of the estate. (ii) determine the date of conclusion of an agreement. For the purposes of paragraph (j) of this section, a split-dollar life insurance agreement shall be entered into no later than the following dates: each of the split-dollar agreements provided that the survivor trust would receive a portion of the death benefit in the greater of the (1) balances of the loan on the death of the insured; (2) the total premiums paid by the survivor`s trust for the policy; or (3) the cash value of the policy immediately prior to the death of the insured (claims in the event of the testator`s death).
The MB Trust would retain any excess of the death benefit (MB Trust`s death claims). The trustees of Survivor Trust and MB Trust may agree in writing to terminate any dollar splitting contract during the life of the insured. If one of the agreements were terminated during the insured`s term, the MB Trust may choose to retain the policy or instead transfer its interest in the policy to the third-party lender ("Termination Rights"). .