IRS Guidance On Abusive Life Insurance Plans

March 16, 2004Articles The Legal Intelligencer

On Feb. 13, the IRS issued extensive guidance intended to shut down abuses involving the purchase of excess insurance coverage and the use of certain specially designed life insurance policies in retirement plans. The guidance addresses situations where such policies, often used in conjunction with fully insured retirement plans allowed under Code Section 412(i), are used to artificially increase the sponsoring employer's deductible plan contributions while greatly reducing the amount of taxable income recognized when the policies are distributed or sold to plan participants.