Comments Concerning IRS Notice 2001–10
I. Characterizing Equity SDAs
- Section 83
- Amount of Life Insurance Protection
We suggest that Treasury and the IRS clarify the meaning of the term "life insurance protection" in the Interim Guidance. Paragraph A.3. of the Interim Guidance provides that the value of life insurance protection provided to the employee by an Equity SDA, reduced by any employee premium payments, is taxable compensation under Section 61. However, the Notice does not address how to calculate the amount of the life insurance protection. The question has arisen with Equity SDAs whether the amount of coverage is only the net amount at risk to the employee under the policy, or all death benefits in excess of the employer's recovery right. For example, assume that a policy with a $1 million face value and $400,000 of CSV is subject to an Equity SDA, and that the employer has paid all policy premiums amounting to $100,000. Is the current life insurance protection $900,000 (total policy death benefits less the employer's premium recovery), or $600,000 (total policy death benefits less policy CSV) for purposes of the Notice?