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THE DEAD PEASANT'S LAST GASP
January 25, 2006
Upon further review, the call on the field is reversed. The IRS has now won every case litigated so far against so-called "dead peasant" insurance policies with the Sixth Circuit Court of Appeals decision in Dow Chemical Company v. United States.
The decision overturns the sole taxpayer victory for these "Corporate Owned Life Insurance (COLI) tax deductions, a 2003 Michigan ruling. The COLI schemes attempted to give companies the ability to deduct interest on amounts borrowed to purchase life insurance on large groups of employees. If the taxpayer is allowed to deduct the interest, they get a tax deduction for the production of tax-free income - the cash value buildup of the insurance policies. The large pool of insureds eliminates most mortality risk in the policies.
Congress long ago stopped these plans, but now it looks like they never did work.
Links:
Sixth Circuit Decision
District Court Decision
Prior Tax Update coverage
UPDATE: Correction made as pointed out in the comment below (Thanks, Hank!).
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Comments
Joe,
Not to pick nits, but are you *sure* you meant:
"...give *insurance companies* the ability to deduct interest..."
(emphasis mine)
My understanding was that the employer/purchaser got the deduction.
Posted by: hgstern | January 25, 2006 10:21 PM
Always happy to be of service!
-- Ted, er...Hank
(That'll make sense shortly, trust me)
Posted by: hgstern | January 26, 2006 8:32 PM