Comments Concerning IRS Notice 2001–10
We appreciate the opportunity to comment on the tax issues concerning split-dollar life insurance arrangements ("SDAs") raised by Notice 2001-10 (the "Notice"). We agree that a need exists for updated guidance that reflects contemporary compensation practices, including equity split-dollar life insurance arrangements ("Equity SDAs"), and currently available insurance products. We commend the Treasury and the Internal Revenue Service ("IRS") for eliminating outdated P.S. 58 rates no longer used by most taxpayers.
We recommend that the effective date of the Interim Guidance entitled "Characterization of SDAs" be delayed so that these guidelines can be amended to address critical issues that were not resolved by the Notice.
We suggest that the Treasury consider a special rule whereby cash surrender value ("CSV") under Equity SDAs structured under the collateral assignment method and entered into before the Notice be subject to tax under Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"). Tax would be assessed when the employee withdraws CSV or surrenders the underlying policy; provided, however that treatment under this special rule would not be available from and after the date that the parties make a material amendment to the arrangement.
We recommend that the Treasury and the IRS develop standardized valuation tables ("SDA Tables") to measure the economic benefit provided in the form of death benefit coverage under SDAs, and that the SDA Tables be updated at least every five years.