Advanced Underwriting Consultants

Question of the Day – April 4

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I understand that company-owned life insurance must now have proper notice and consent forms signed prior to issue, and that the employer may be responsible for filing a tax form with the IRS.  Can you explain the rules?

Answer: Normally a life insurance death benefit is income tax free.  In order to maintain the tax free nature of the death benefit from a business owned policy, the Section 101(j) rules must be followed.

Among other requirements, compliance with Section 101(j) requires a signed notice and consent form.

The IRS also requires an employer to report the number of its policies subject to Section 101(j) on Form 8925 every year.

Here’s a brief overview:

If the company owned policy was purchased prior to 8/17/2006 and has been unchanged since:

No notice and consent is required, and no Form 8925 needs to be filed for the policy by the employer every tax year.

If the company owned policy was purchased prior to 8/17/2006 and has been materially changed after 8/17/2006:

The notice and consent must have been signed prior to the policy change, and Form 8925 needs to be filed for the policy by the employer every tax year.

If the company owned policy was purchased after 8/17/2006:

The notice and consent must have been signed prior to policy issue, and Form 8925 needs to be filed for the policy by the employer every tax year.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.