Stranger in a Strange Plan

Media reports highlighting the hazards of so-called stranger-originated (also known as stranger-owned) life insurance (STOLI) prompted U.S. House tax writers to ask Treasury Secretary Henry Paulson to investigate the practice as well as consider issuing guidance on its tax implications and help Congress notify “elderly taxpayers of the adverse tax consequences of investing in a product that is in fact ‘too good to be true.’ ” Reps. Richard E. Neal, D-Mass., and Phil English, R-Pa., the chairman and ranking member, respectively, of the Select Revenue Measures Subcommittee of the House Committee on Ways and Means, wrote Paulson in November. Aggressively promoted life insurance policies purchased by investors in the secondary market may in some instances subject those insured to unexpected inclusion of taxable income, the congressmen said.