Comments Concerning IRS Notice 2001–10
I. Characterizing Equity SDAs
- Section 7872
- Employer Interest in Excess of Premium Payments
We request guidance as to how Section 7872 will apply to Equity SDAs when the employer's interest is not limited to premium payments. Many Equity SDAs increase the employer's recovery right by an adjustment factor as compensation for the use of its funds. The adjustment factor used for the increase often is the employer's cost of capital or, in some cases, the applicable federal rate as in effect when the parties established the Equity SDA. Under what circumstances will Equity SDAs that provide for an increase in the employer's recovery right be treated as outside the scope of Section 7872? Can the increased recovery right be taken into account in determining the foregone interest for Equity SDAs that are subject to Section 7872?