Comments Concerning IRS Notice 2001–10
I. Characterizing Equity SDAs
- Section 83
- Payment of Death Benefit
The Notice creates some confusion as to whether death benefits payable from a policy subject to an Equity SDA would be tax-free under Section 101 of the Code. The non-loan characterization of an Equity SDA provides for the income taxation of CSV at some point during the employee's lifetime. If the employee dies before receiving a taxable transfer of the policy's CSV, the Notice can be read to imply that death proceeds attributable to CSV exceeding the employer's premium payments are taxable under Section 83. We suggest clarification that the payment of death benefit proceeds are tax-free regardless of whether there is any policy equity.