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JOINT COMMITTEE ISSUES SUMMARY OF CORPORATE-OWNED LIFE INSURANCE ISSUES

October 15, 2003

The Congressional Joint Committe on Taxation yesterday issued a summary of the tax rules governing corporate owned life insurance (pdf format). It is perhaps the best short guide available to this arcane area of the tax law.

The guide was prepared in advance of hearings today on the proposal to eliminate the tax-free treatment of life insurance proceeds for former employees (prior coverage here and here).

The Joint Committee report summarizes the tax law on:

-tax-free treatment of policy proceeds and buildup
-deductibility of interest used to buy policies
-the cases on "dead peasant" or "janitor insurance" arrangements, where corporations insured large numbers of employees to arbitrage deductible interest expense against tax-free cash value buildup.

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