Mutually Exclusive Regimes--An SDLI arrangement is taxed under the economic benefit or loan regime.
A special rule requires the economic benefit regime to apply to any SDLI arrangement if:
These proposals require the owner and non-owner of a contract that is part of an SDLI arrangement, as defined under the general or special rule, to fully and consistently account for all amounts under the arrangement under Prop.
General federal tax principles apply to SDLI arrangements unless the non-owner's payments are certain payments for economic benefits.
In addition, Notice 2002-59 (IRB 2002-36, 9/9/02) describes standards for valuing life insurance protection under SDLI arrangements.
The effect of the Tax Reform Act of 1986, the Technical and Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1993 and the Small Business job Protection Act of 1996 on qualified retirement plans, welfare benefit plans and nonqualified deferred compensation plans has enhanced the benefit of SDLI arrangements.
64-328, the IRS ruled that an SDLI agreement between an employee and employer resulted in income to the employee based on the "economic benefit" conferred by the plan.
From an employer's standpoint, SDLI can offer a valuable fringe benefit at annual cost.
There are numerous ways to split premiums in an SDLI arrangement.
The two traditional SDLI structures are the "endorsement" and the "collateral assignment" methods.
In Letter Ruling (TAM) 9604001,(7) the Service took a position on the income and gift tax treatment of SDLI that appears inconsistent with the regulations and prior rulings.