The Pension Protection Act of 2006 added new provisions to the Internal Revenue Code at Section 6039I regarding employer-owned life insurance. Any employer holding a life insurance contract on an employee in which the employer is the direct or indirect beneficiary of that life insurance contract is subject to the notice and consent requirements of Internal Revenue Code Section 6039I to ensure that the death benefit is excluded from income.
These provisions were added to the Internal Revenue Code to prevent incidents such as past news-making employers that obtained life insurance contracts on “rank and file” or lower-paid employees without their knowledge.
The employee consent must be obtained prior to the issuance of the employer-owned life insurance contract. The notice and consent requirements are effective only on life insurance contracts issued after August 17, 2006, unless there is a material change to a grandfathered policy issued prior to that date.
Additionally, Internal Revenue Service Form 8925, Report of Employer-Owned Life Insurance Contracts, must be filed annually with the employer’s income tax return. This form requires the employer to report the number of life insurance contracts it holds on employees, as well as the total death benefit available under the contract(s). Form 8925 also requires the employer to attest that it holds a valid consent given by the employee that he or she was aware of the life insurance contract at the time of application and the particulars of such contract.
If you would like more information on the notice and consent requirements for employer-owned life insurance, please contact Rachelle Kulback.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.