Employer-Owned Life Insurance After the Pension Protection Act of 2006 by Florida Bar Journal

Book Review : Employer-Owned Life Insurance After the Pension Protection Act of 2006

By Florida Bar Journal

  • Publication Date: 2009-02-01
  • Genre: Law

Book Review

Many employers purchase insurance policies insuring the lives of their employees. These policies, generally referred to as "corporate-owned life insurance" (COLI) or "employer-owned life insurance" (EOLI), are used to fund employee benefit plans and buy-sell agreements, and to protect employers against the financial consequences of the death of a key employee. Under the general rule of [section]101(a) of the Internal Revenue Code (I.R.C.), (1) the death benefit received by an employer under an EOLI policy is excluded from the employer's gross income. Highly publicized reports of abuses of EOLI policies by employers, however, have caused Congress to impose disclosure, consent, and reporting requirements on employers that must be satisfied in order for employers to exclude EOLI death benefits from gross income. This article discusses I.R.C. [section]101(j) of the code, which was added to the I.R.C. by the Pension Protection Act of 2006 to combat perceived abuses of EOLI policies. While the abuses of EOLI policies by employers received national attention, the additional requirements imposed on employers under I.R.C. [section]101(j) have received relatively little fanfare. As a result, I.R.C. [section]101(j) has become a trap for the unwary that may result in the taxation of EOLI death benefits in routine transactions.

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