Subchapter L: Can You Believe It? Deductible Tax Reserves Might Be Greater For Life Insurance Contracts That Flunk IRC Section 7702 Than For Those That Do Not

In my column in the last issue of TAXING TIMES, I pointed out that, despite contrary authority in Rev. Rul. 91-17, the Internal Revenue Code imposes no withholding and reporting obligations on the issuer of a failed contract that does not satisfy the

definition of a life insurance contract

under I.R.C. § 7702 even

though the inside build-up on

the contract in an amount specified

in I.R.C. § 7702(g) is currently

taxable to the policyholder.

This column will now turn to

the taxation of the issuer with respect

to a failed contract. It may

seem counterintuitive, but it is

possible for a life insurance company

to have a more favorable tax

result if a contract flunks I.R.C.

§ 7702, i.e., it may get a higher

tax reserve deduction

Taxing Times, Vol . 11, Issue 3 (October 2015)

L. Wright