EARLIER THIS month, the Internal Revenue Service (IRS) issued proposed regulations regarding the taxation of split-dollar life insurance arrangements. These proposed regulations follow the issuance, in January 2002, of Notice 2002-8, which provided interim guidelines. The proposed regulations provide more comprehensive guidance by, among other things, clarifying the types of arrangements that will be considered split-dollar life insurance arrangements (split-dollar arrangements) under the Internal Revenue Code of 1986, as amended (code), distinguishing between owners and non-owners of life insurance contracts for purposes of tax treatment, and setting forth two mutually exclusive concepts under which split-dollar arrangements will be taxed.
While the proposed regulations provide guidance regarding the income, employment and gift tax treatment of split-dollar arrangements (including equity split-dollar arrangements) in a variety of contexts (e.g., employer/employee, corporation/shareholder and donor/donee), this article will focus on the federal income tax treatment of split-dollar arrangements in the employment context.
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