William Byrnes' Tax, Wealth, and Risk Intelligence

The IRS’s latest split dollar rulings is a cautionary tale that, despite its happy ending, illustrates the danger lurking at every corner of the split-dollar life insurance regulations.  The ruling shows that, despite otherwise meticulous adherence to the tax code and regulations, a split-dollar arrangement can fail for lack of filing a simple annual statement with the IRS.  In PLR 201041006, the IRS considered a charity’s request to grant the charity an extension to make a required filing under the split-dollar regulations.

The taxpayer in the case is a charity (Charity) that ran a split-dollar life insurance program for its high-level employees.  Not having any expertise with SDPs, Charity hired a company to revise its SDP.  On the consultant’s recommendation, Charity entered into a new SDP. The new SDP was entered into after the Treasury issued final regulations under §§1.61-22 and 1.7872-15, which can carry adverse tax consequences for both parties to a split-dollar arrangement. 

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For previous coverage of IRS split-dollar rulings in Advisor’s Journal, see Modification of Split-Dollar Arrangement Not a Material Change to Underlying Life Insurance Contract (CC 08-17) and Notice 2007-34 Explains Application of Section 409A to Split-dollar Life Insurance Arrangements (CC 07-18).

For in-depth analysis of split-dollar life insurance, see Advisor’s Main Library: Section 15.2  Split-Dollar.

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