William Byrnes' Tax, Wealth, and Risk Intelligence

The Tax Court recently determined that the fair market value (FMV) of a life insurance policy distributed by a terminated 419 welfare benefit plan is reduced by surrender charges. [Lowe v. C.I.R., T.C. Memo. 2011-106 (2011)].

This ruling strengthens the Tax Court’s position on surrender charges that was enunciated in Schwab v. Commissioner [Michael P. Schwab et ux. v. C.I.R., 136 T.C. No. 6 (2011)]. The IRS continues to challenge taxpayers who apply surrender charges to reduce or eliminate their tax liability when a policy is distributed to them by a welfare benefit plan. However, this ruling adds another degree of certainty to the FMV calculation.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Tax Court rulings in Advisor’s Journal, see Tax Court Revives Partnership Self-Employment Tax Debate (CC 11-56).