The IRS has issued final regulations on information reporting required for employer-owned life insurance policies.
The Pension Protection Act of 2006 added IRC §§ 101(j) and 6039I concerning employer-owned life insurance contracts. An employer-owned life insurance contract is one owned by a person engaged in a trade or business employing the insured person where the employer is the direct or indirect beneficiary of the contract.
Under IRC § 101(j), the amount of death benefits that may be excluded from gross income is limited to the sum of the premiums and other amounts paid by the employer-policyholder for the contract. That limitation, however, doesn’t apply with respect to insureds who were employees at any time within 12 months of their deaths, highly compensated employees or highly compensated individuals. It also doesn’t apply to death benefits paid to a family member or estate of the insured, amounts paid to a designated beneficiary of the insurance contract other than the applicable policyholder, or to a trust for the benefit of a family member or designated beneficiary. Furthermore, the limitation doesn’t apply to death benefit amounts used to purchase an equity interest in the applicable policyholder from a family member, trust or estate. Note, however, that “highly compensated individuals” for purposes of this subsection include the highest-paid 35% of employees rather than the top 25% of employees in the otherwise applicable definition found in IRC § 105(h)(5), which sets forth nondiscrimination requirements for self-insured medical reimbursement plans.
Under IRC § 6039I, every policyholder owning one or more employer-owned life insurance contracts issued after Aug. 17, 2006, must file a return for each year that contracts are owned and report the following:
(1) The number of employees of the applicable policyholder at the end of the year;
(2) The number of those employees insured under employer-owned life insurance contracts at the end of the year;
(3) The total amount of insurance in force at the end of the year under those contracts;
(4) The name, address and taxpayer identification number of the applicable policyholder and the type of business in which the policyholder is engaged; and
(5) That the applicable policyholder has a valid consent for each insured employee (or, if not all required consents are obtained, the number of insured employees for whom consent was not obtained).
The final regulations provide that the information be reported by attaching Form 8925, Report of Employer-Owned Life Insurance Contracts, to the policyholder’s income tax return by the due date of the return. These regulations adopt the proposed regulations without substantive change and are applicable for tax years ending after Nov. 6, 2008.
TD 9431, Treas. Reg. § 1.6039I-1
By Melanie J. Earles, CPA, DBA, professor of accounting, Tennessee Tech University, Cookeville, Tenn.