Notice 2002-8

Part III. Administrative, Procedural, and Miscellaneous
Split-Dollar Life Insurance
Arrangements
Notice 2002–8
I. PURPOSE AND OVERVIEW
On January 29, 2001, the Treasury
Department and Internal Revenue Service
issued Notice 2001–10 (2001–5 I.R.B.
459) to provide interim guidance regarding the tax treatment of parties entering
into split-dollar life insurance arrangements and to revise standards for valuing
current life insurance protection. This
Notice 2002–8:
• Revokes Notice 2001–10;
• Announces that the Treasury and the
Service intend to publish proposed
regulations providing comprehensive
guidance regarding the Federal tax
treatment of split-dollar life insurance
arrangements;
• Outlines rules expected to be included
in the forthcoming proposed regulations and the expected effective date
of those regulations; and
• Provides guidance regarding the valuation of current life insurance protection under a split-dollar life insurance
arrangement, under qualified retirement plans and under employee annuity contracts.
II. EXPECTED PROPOSED
REGULATIONS
Treasury and the Service intend to
issue proposed regulations requiring the
taxation of parties to a split-dollar life
insurance arrangement under one of two
mutually exclusive regimes. Under one
regime, the economic benefits of a splitdollar life insurance arrangement generally are treated as transfers to the benefited party. Under the other regime,
payments by the sponsor (i.e., the party
providing life insurance benefits to the
other party under the arrangement) pursuant to a split-dollar life insurance arrangement generally are treated as a series of
loans to the benefited party.
The proposed regulations are expected
to provide that, in an employment-related
split-dollar life insurance arrangement, if
the employer is formally designated as
the owner of the life insurance contract,

January 28, 2002

then the benefits provided to the
employee under the arrangement are subject to tax under the first regime. Under
this regime, the employer is treated for
Federal tax purposes as the owner of the
life insurance contract prior to termination of the arrangement, and is treated as
providing current life insurance protection and other economic benefits to the
employee, which are taxable under section 61 of the Internal Revenue Code. A
transfer of the life insurance contract to
the employee is taxed under section 83.
The proposed regulations will not treat an
employer as having made a transfer of a
portion of the cash surrender value of a
life insurance contract to an employee for
purposes of section 83 solely because the
interest or other earnings credited to the
cash surrender value of the contract cause
the cash surrender value to exceed the
portion thereof payable to the employer.
The proposed regulations are expected
to provide that if the employee is formally designated as the owner of the life
insurance contract under a split-dollar
arrangement, then the premiums paid by
the employer are treated as a series of
loans by the employer to the employee if
the employee is obligated to repay the
employer, whether out of contract proceeds or otherwise. Under this second
regime, the loans are subject to the principles, where applicable, of sections
1271–1275 (regarding the taxation of
original issue discount) and section 7872
(in the case of a compensation-related
below-market loan, section 7872 deems
an interest payment by the employee to
the employer, which is funded by deemed
additional compensation paid by the
employer to the employee). If the
employee is not obligated to repay the
premiums paid by the employer, then
such amounts are treated as compensation
income to the employee at the time the
premiums are paid by the employer.
The same principles are expected to
govern the Federal tax treatment of splitdollar life insurance arrangements in
other contexts, including arrangements
that provide benefits in gift and
corporation-shareholder contexts.
The proposed regulations addressing
the Federal tax treatment of split-dollar
life insurance arrangements will be effec-

398

tive for arrangements entered into after
the date of publication of final regulations.
III. REVISED STANDARDS FOR
VALUING CURRENT LIFE
INSURANCE PROTECTION
Pending the consideration of comments and publication of further guidance, the following interim guidance is
provided on the valuation of current life
insurance protection:
1. Rev. Rul. 55–747 (1955–2 C.B.
228), remains revoked, as provided in and
with the transitional relief for 2001
described in Part IV.B.1 of Notice 2001–
10. Notwithstanding such revocation, for
a split-dollar life insurance arrangement
entered into before January 28, 2002, in
which a contractual arrangement between
an employer and employee provides that
the P.S. 58 rates will be used to determine
the value of current life insurance protection provided to the employee (or to the
employee and one or more additional persons), the employer and employee may
continue to use the P.S. 58 rates set forth
in Rev. Rul. 55–747 to determine the
value of current life insurance protection.
2. For arrangements entered into
before the effective date of future guidance, taxpayers may use the premium rate
table set forth at the end of this notice to
determine the value of current life insurance protection on a single life that is
provided under a split-dollar life insurance arrangement, in a qualified retirement plan, or under employee annuity
contracts. (This table is captioned as
Table 2001 and was originally published
in Notice 2001–10.) Taxpayers should
make appropriate adjustments to these
premium rates if the life insurance protection covers more than one life.
3. For arrangements entered into
before the effective date of future guidance, to the extent provided by Rev. Rul.
66–110 (1966–1 C.B. 12) as amplified by
Rev. Rul. 67–154 (1967–1 C.B. 11) taxpayers may continue to determine the
value of current life insurance protection
by using the insurer’s lower published
premium rates that are available to all
standard risks for initial issue one-year
term insurance. However, for arrangements entered into after January 28, 2002,

2002–4 I.R.B.

and before the effective date of future
guidance, for periods after December 31,
2003, the Service will not consider an
insurer’s published premium rates to be
available to all standard risks who apply
for term insurance unless (i) the insurer
generally makes the availability of such
rates known to persons who apply for
term insurance coverage from the insurer,
and (ii) the insurer regularly sells term
insurance at such rates to individuals who
apply for term insurance coverage
through the insurer’s normal distribution
channels.
IV. SPLIT-DOLLAR LIFE
INSURANCE ARRANGEMENTS
ENTERED INTO BEFORE THE DATE
OF PUBLICATION OF FINAL
REGULATIONS
1. For split-dollar life insurance
arrangements entered into before the date
of publication of final regulations, the
Service will not treat a service recipient
as having made a transfer of a portion of
the cash surrender value of a life insurance contract to a service provider for
purposes of section 83 solely because the
interest or other earnings credited to the
cash surrender value of the contract cause
the cash surrender value to exceed the
portion thereof payable to the service
recipient.
2. For split-dollar life insurance
arrangements entered into before the date
of publication of final regulations, in
cases where the value of current life
insurance protection is treated as an economic benefit provided by a sponsor to a
benefited person under a split-dollar life
insurance arrangement, the Service will
not treat the arrangement as having been
terminated (and thus will not assert that
there has been a transfer of property to
the benefited person by reason of termination of the arrangement) for so long as
the parties to the arrangement continue to
treat and report the value of the life insurance protection as an economic benefit
provided to the benefited person. This
treatment will be accepted without regard
to the level of the remaining economic
interest that the sponsor has in the life
insurance contract.
3. For split-dollar life insurance
arrangements entered into before the date
of publication of final regulations, the
parties to the arrangement may treat pre-

2002–4 I.R.B.

mium or other payments by the sponsor
as loans. In such cases, the Service will
not challenge reasonable efforts to comply with the requirements of sections
1271–1275 and section 7872. All payments by the sponsor from the inception
of the arrangement (reduced by any
repayments to the sponsor) before the
first taxable year in which such payments
are treated as loans for Federal tax purposes must be treated as loans entered
into at the beginning of that first year in
which such payments are treated as loans.
4. For split-dollar life insurance
arrangements entered into before January
28, 2002, under which a sponsor has
made premium or other payments under
the arrangement and has received or is
entitled to receive full repayment of all of
its payments, the Service will not assert
that there has been a taxable transfer of
property to a benefited person upon termination of the arrangement if (i) the
arrangement is terminated before January
1, 2004, or (ii) for all periods beginning
on or after January 1, 2004, all payments
by the sponsor from inception of the
arrangement (reduced by any repayments
to the sponsor) are treated as loans for
Federal tax purposes, and the parties to
the arrangement report the tax treatment
in a manner consistent with this loan
treatment, including sections 1271–1275
and section 7872. Any such payments by
the sponsor before the first taxable year in
which such payments are treated as loans
for Federal tax purposes must be treated
as loans entered into at the beginning of
that first year in which such payments are
treated as loans.
V. REQUEST FOR COMMENTS
The proposed regulations will provide
an opportunity for comment. In addition,
Treasury and the Service request comments on this notice, in particular on both
the appropriate rates for valuing current
life insurance protection and the standards that should be required for use of
the insurer’s published premium rates for
valuing current life insurance protection.
Comments are specifically invited on (i)
whether one or more premium rate tables
should be prescribed as the exclusive
basis for valuing current life insurance
protection for Federal tax purposes, and
(ii) if one or more premium rate tables are
prescribed for these purposes, how such

399

tables should be determined and whether
premium rates charged by life insurance
companies can be used for this determination.
Written comments on this notice are
requested to be submitted no later than
April 28, 2002, to CC:ITA:RU (Notice
2002–8 [NOT–168656–01]), room 5226,
Internal Revenue Service, POB 7604,
Ben Franklin Station, Washington, DC
20044. Comments may be hand delivered
Monday through Friday between the
hours of 8 a.m. and 5 p.m. to CC:ITA:RU
(Notice 2002–8 [NOT–168656–01]),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC, or submitted electronically to: Notice.Comments@irscounsel.
treas.gov. All comments will be available
for public inspection and copying.
VI. EFFECT ON OTHER
DOCUMENTS
Notice 2001–10 is revoked. Notwithstanding that revocation, Rev. Rul.
55–747 remains revoked, and Rev. Rul.
64–328 (1964–2 C.B. 11) and Rev. Rul.
66–110 remain modified to the extent that
those rulings indicate that an employer’s
premium payments under a split-dollar
life insurance arrangement may not be
treated as loans.
Except for Part III (Revised Standards
for Valuing Current Life Insurance Protection), no inference should be drawn
from this notice regarding the appropriate
Federal income, employment and gift tax
treatment of split-dollar life insurance
arrangements entered into before the date
of publication of final regulations. However, taxpayers may rely on this notice
(including a reasonable application of the
rules to be proposed as described in Part
II) or Notice 2001–10 for split-dollar life
insurance arrangements entered into
before the date of publication of final
regulations.
VII. CONTACT INFORMATION
For further information regarding this
notice, contact Rebecca Asta of the Office
of Associate Chief Counsel (Financial
Institutions and Products) at (202) 622–
3930, or Erinn Madden of the Office of
Associate Chief Counsel (Tax Exempt
and Government Entities) at (202) 622–
6030 (not toll-free calls).

January 28, 2002

TABLE 2001
INTERIM TABLE OF ONE-YEAR TERM PREMIUMS
FOR $1,000 OF LIFE INSURANCE PROTECTION

Attained
Age

Section 79
Extended and
Interpolated
Annual Rates

Attained
Age

Section 79
Extended and
Interpolated
Annual Rates

Attained
Age

Section 79
Extended and
Interpolated
Annual Rates

0
1

$ 0.70
$ 0.41

35
36

$ 0.99
$ 1.01

70
71

$ 20.62
$ 22.72

2
3

$ 0.27
$ 0.19

37
38

$ 1.04
$ 1.06

72
73

$ 25.07
$ 27.57

4
5
6
7
8

$
$
$
$
$

0.13
0.13
0.14
0.15
0.16

39
40
41
42
43

$
$
$
$
$

1.07
1.10
1.13
1.20
1.29

74
75
76
77
78

$
$
$
$
$

30.18
33.05
36.33
40.17
44.33

9
10
11
12

$
$
$
$

0.16
0.16
0.19
0.24

44
45
46
47

$
$
$
$

1.40
1.53
1.67
1.83

79
80
81
82

$
$
$
$

49.23
54.56
60.51
66.74

13
14
15
16

$
$
$
$

0.28
0.33
0.38
0.52

48
49
50
51

$
$
$
$

1.98
2.13
2.30
2.52

83
84
85
86

$
$
$
$

73.07
80.35
88.76
99.16

17
18
19

$ 0.57
$ 0.59
$ 0.61

52
53
54

$ 2.81
$ 3.20
$ 3.65

87
88
89

$ 110.40
$ 121.85
$ 133.40

20
21
22
23
24

$
$
$
$
$

0.62
0.62
0.64
0.66
0.68

55
56
57
58
59

$
$
$
$
$

4.15
4.68
5.20
5.66
6.06

90
91
92
93
94

$
$
$
$
$

144.30
155.80
168.75
186.44
206.70

25
26
27
28
29
30
31
32
33

$
$
$
$
$
$
$
$
$

0.71
0.73
0.76
0.80
0.83
0.87
0.90
0.93
0.96

60
61
62
63
64
65
66
67
68

$
$
$
$
$
$
$
$
$

6.51
7.11
7.96
9.08
10.41
11.90
13.51
15.20
16.92

95
96
97
98
99

$
$
$
$
$

228.35
250.01
265.09
270.11
281.05

34

$ 0.98

69

$ 18.70

January 28, 2002

400

2002–4 I.R.B.