Assn group news

Technical Advise Memorandum (TAM) 200502040,
January 14, 2005 Supports the Program!
Program to avoid the possibility of constructive receipt of
the inside buildup of the contract.
7. Employees in the Group Universal program were issued
a certificate from the Insurance Carrier describing benefits
and stating the benefits were subject to the terms and
conditions of the Group Policy.[p.3 l.4-5]
8. According to the Insurance Carrier the policy including
the Supplemental Fund was filed with the state insurance
regulators as a single life insurance product. The cash
value features of the insurance contract was referred to
as the Fund [p.3 l.7-11].
THE LAW - Group Universal Program
 9. The legislative history of section 79 of the Code states
that the cost of group-term life insurance protection above
the exclusion level is to be taxed to an employee “if it is
provided under a plan arranged for by the employer where
the protection the employee receives (over and above that
provided by his own contributions) is provided directly by
the employer, or indirectly by the employer’s charging
more than the cost of the insurance to other employees
(such as those in younger age brackets) and less to those
in the older age brackets, such as the specific employee
in question” S.Rep. No. 830, 88th Cong., 2d Sess. 1
(1964), 1964-1 (Part 2) C.B. 502, 550 [p.6 l 21-28].
10. Section 83 of the Code provides rules governing the
taxation of property transferred in connection with the
performance of services. Generally upon the transfer of
substantially vested property to a service provider, the
service provider must recognize income under section
83(a) in amount equal to the excess of the fair market
value of the property over the amount the service provider
paid for the property. Section 1.83-3(e) defines property
in the case of a transfer of life insurance contract or other
contract providing life insurance protection as only the
cash surrender value of the contract. Section 83(e) (5) of
the Code provides that section 83 does not apply to groupterm
life insurance to which section 79 applies [p.2 l.29 -
p.3 l.2].
11. The IRS determined the Group Universal life insurance
can be tested as a separate policy for determining whether
Technical Advise Memorandum 200502040 (the TAM)
issued on January 14,2005 confirms the structure of the
ASSN GroupR (The Program). The ability to separate a
group certificate into two separate contracts for tax
purposes and have both contracts qualify as life insurance
under Sec. 7702(a) assures the benefit structure and
compliance standards. This is the result even when the
Insurance Carrier has filed the contract with the State’s
Insurance Regulatory Agency as “a single integrated
permanent insurance policy” [p.3 l. 7-9].
The TAM fact pattern has many similarities and the points
of law that are relied upon by the IRS supports the nontaxation
of the transaction for the Program.
FACTS:
1. The Employer (Taxpayer) offered to employees a group
term life program [p.2 l.2].
2. Each employee paid a portion of the cost [p.2 l.7-9].
3. The eligible employees apply to the Administrator (not
the insurance carrier) to be covered by a group term life
program [p.2 l.14]. The Taxpayer directs payment to the
Administrator.
4. The premium charged for the group universal life
insurance were based on $1,000’s of coverage and was
age related. Rates charged to the employees for the
coverage could be changed annually to reflect the
experience of the group [p.2 l.26-30].
5. An employee enrolled in the group universal program
also would have Taxpayer contribute payments to the
group universal life fund (Supplemental Fund) [p.2 l.33].
6. Amounts contributed to the Supplemental Fund were
deducted by the Taxpayer and were deemed after tax
contributions by the employee. Amounts contributed to
the Supplemental Fund earned income. Those amounts
were available for loans to the employees. At death any
balance of the Supplemental Fund was payable to the
employee’s named beneficiary [p.2 l.34-39].
The Program takes a more cautious and prudent approach
and does not permit an employee to access the cash in
the Supplemental Fund while they are a part of the