A split-dollar arrangement (SDA) typically is an agreement between an employer and employee to share (“split”) the costs and benefits of a cash value life insurance policy. The policy provides key executives with valuable insurance protection. SDAs can also involve nonemployee shareholders or partners and can be structured between family members (private or family split-dollar).
The IRS has provided new and interim guidance on the taxation of split-dollar life insurance arrangements (Notice 2002-8, Jan. 28, 2002). The IRS is expected to issue proposed regulations by the end of March and final regulations at a later date. The Notice evokes last year’s Notice on SDAs (Notice 2001-10,-5, 459), outlines the expected proposed regulations and, more importantly, gives very useful transition rules for existing split-dollar plans.
