{
  "id": "RL32000",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL32000",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 101671,
      "date": "2003-07-18",
      "retrieved": "2016-04-08T14:41:20.846544",
      "title": "Taxation of Life Insurance Products: Background and Issues",
      "summary": "Owners and beneficiaries of life insurance contracts receive favorable treatment under the federal\nincome tax laws. Before examining this tax treatment, this report provides an overview of the term\nlife insurance and cash value life insurance products, including \"whole\" life insurance, \"universal\"\nlife insurance, and \"variable\" life insurance. This discussion illustrates how cash value life insurance\ncan operate as an investment vehicle that combines life insurance protection with a financial\ninstrument that operates similarly to bank certificates of deposit and mutual fund investments.\n  Next, the income tax provisions that apply to the owners of life insurance are analyzed. Under\nthe Internal Revenue Code, income measurement rules cause a portion of the investment income to\nnot be taxed. In addition, the remaining investment income is not taxed contemporaneously, and\nmay be totally exempt from taxation. This report provides a brief overview of Internal Revenue\nCode provisions that create these tax results, and the provisions that limit the favorable tax treatment. \n  The report then considers the current tax treatment justifications from a tax policy perspective. \nIn this analysis, the report examines the principal arguments of supporters of the current tax\ntreatment of the investment income credited to life insurance contracts and compares life insurance\nto other tax-preferred investment vehicles. The report also considers the limits on investment\noriented uses of life insurance in terms of preventing inappropriate uses of life insurance as an\ninvestment.\n  Next, the report provides an overview of two distinct categories of life insurance:\ncorporate-owned life insurance (\"COLI\") and split dollar life insurance. These arrangements are\nused as tax planning devices to provide tax benefits to corporations and their corporate executives\nand managers. In particular, the report examines the economics and tax restrictions that apply to\n\"leveraged\" COLI arrangements, in which the corporate owner of the life insurance contract borrows\nto pay a substantial portion of the insurance premiums. COLI has recently been the object of critical\nmedia articles, major litigation on behalf of the IRS, and a series of legislative proposals to revise\nthe taxation of these life insurance products. Most recently, Representative Emanuel introduced\n H.R. 2127 , which would generally repeal the exclusion of death benefits from taxation\nunder many corporate-owned life insurance policies.\n  In the last section of the report, the structure and function of split-dollar arrangements are\ndescribed. This section discusses the Internal Revenue Service's long-standing treatment of the\ntraditional arrangement, and the report concludes with an analysis of the factors that led the IRS and\nthe Treasury Department to reconsider this position and to issue new guidance concerning the tax\ntreatment of split dollar arrangements. This report does not track current legislation and will not be\nupdated.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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          "url": "http://www.crs.gov/Reports/pdf/RL32000",
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy"
  ]
}