[Federal Register Volume 73, Number 216 (Thursday, November 6, 2008)]
[Rules and Regulations]
[Pages 65981-65982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26424]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9431]
RIN 1545-BG58


Information Reporting on Employer-Owned Life Insurance Contracts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations concerning 
information reporting on employer-owned life insurance contracts under 
section 6039I of the Internal Revenue Code (Code). This final 
regulation is necessary to provide taxpayers with guidance as to how 
the requirements of section 6039I should be applied. These regulations 
generally apply to taxpayers that are engaged in a trade or business 
and that are directly or indirectly a beneficiary of a life insurance 
contract covering the life of an insured who is an employee of the 
trade or business on the date the contract is issued.

DATES: Effective Date: These regulations are effective on November 6, 
2008.
    Applicability Date: These regulations are applicable for tax years 
ending after November 6, 2008.

FOR FURTHER INFORMATION CONTACT: Linda K. Boyd, 202-622-3970 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    The Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 
780 (2006), added sections 101(j) and 6039I to Code concerning 
employer-owned life insurance contracts.
    Section 101(j)(1) provides that, in the case of an employer-owned 
life insurance contract, the amount of death benefits excluded from 
gross income under section 101(a)(1) shall not exceed an amount equal 
to the sum of the premiums and other amounts paid by the policyholder 
for the contract. For this purpose, an employer-owned life insurance 
contract is a life insurance contract that (i) is owned by a person 
engaged in a trade or business and under which such person is directly 
or indirectly a beneficiary under the contract, and (ii) covers the 
life of an insured who is an employee with respect to the trade or 
business on the date the contract is issued. An applicable policyholder 
is generally a person who owns an employer-owned life insurance 
contract, or a related person as described in section 101(j)(3).
    Section 101(j)(2) provides exceptions to the general rule of 
section 101(j)(1) in the case of certain employer-owned life insurance 
contracts with respect to which certain notice and consent requirements 
are met. Those exceptions are based either on (i) the insured's status 
as an employee within 12 months of death or as a highly compensated 
employee or highly compensated individual, or (ii) the extent to which 
death benefits are paid to a family member, trust, or estate of the 
insured employee, or are used to purchase an equity interest in the 
applicable policyholder from a family member, trust or estate.
    Section 6039I provides that every applicable policyholder that owns 
one or more employer-owned life insurance contracts shall file a 
return, at such time and in such manner as the Secretary shall 
prescribe by regulations, showing for each year the contracts are 
owned--
    (1) The number of employees of the applicable policyholder at the 
end of the year;
    (2) The number of such employees insured under such contracts at 
the end of the year;
    (3) The total amount of insurance in force at the end of the year 
under such contracts;
    (4) The name, address, and taxpayer identification number of the 
applicable policyholder and the type of business in which the 
policyholder is engaged; and
    (5) That the policyholder has a valid consent for each insured 
employee (or, if not all such consents are obtained, the number of 
insured employees for whom such consent was not obtained).
    Section 6039I(c) provides that any term used in section 6039I that 
is used in section 101(j) has the same meaning given that term by 
section 101(j).
    Sections 101(j) and 6039I apply to life insurance contracts issued 
after August 17, 2006, except for a contract issued after that date 
pursuant to a section 1035 exchange for a contract issued before that 
date. For this purpose, a material increase in the death benefit or 
other material change causes the contract to be treated as a new 
contract except that, in the case of a master contract within the 
meaning of section 264(f)(4)(E), the addition of covered lives is 
treated as a new contract only with respect to those additional covered 
lives.
    On November 13, 2007, the IRS published temporary regulations in 
the Federal Register (TD 9364) (72 FR 63806), which serve as the basis 
for a cross-reference notice of proposed rulemaking (REG-115910-07) (72 
FR 63838).
    The temporary regulations and notice of proposed rulemaking provide 
that the Commissioner may prescribe the form and manner of satisfying 
the reporting requirements imposed by section 6039I on applicable 
policyholders owning one or more employer-owned life insurance 
contracts issued after August 17, 2006. Pursuant to these regulations, 
on January 24, 2008, the IRS released Form 8925, ``Report of Employer-
Owned Life Insurance Contracts'', for taxpayers to use to comply with 
the reporting requirements of section 6039I.
    No public hearing was requested or held. The IRS received comments 
from one taxpayer. Those comments primarily concern the notice and 
consent requirements of section 101(j), rather than the reporting 
requirements of section 6039I. Accordingly, this Treasury decision 
adopts the proposed regulations without substantive change and removes 
the corresponding temporary regulations. In order to make the 
regulations more useful to taxpayers, this Treasury decision sets forth 
the information that is enumerated in section 6039I and required to be 
reported under that provision. The IRS and Treasury Departments will 
continue to consider the comments received in connection with any 
future published guidance under section 101(j).

Special Analyses

    It has been determined that this Treasury Decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to this regulation.
    In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter 
6), it is hereby certified that the regulations will not have a 
significant economic impact on a substantial number of small entities. 
Even though a substantial number of small entities may be subject to 
the requirements of section 6039I, these final regulations do not 
require the reporting of information other than that which is 
specifically required by section 6039I. Further, the burden associated 
with completing the prescribed form is

[[Page 65982]]

minimal because the information required by section 6039I is readily 
available. Accordingly, the regulations will not have a significant 
economic impact on a substantial number of small entities and a 
regulatory flexibility analysis is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking preceding this regulation was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Linda K. Boyd, Office 
of Associate Chief Counsel (Financial Institutions & Products). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the entry for Sec.  1.6039I-1T, and adding an entry in numerical order 
to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *.
    Section 1.6039I-1 also issued under 26 U.S.C. 6039I. * * *


0
Par. 2. Section 1.6039I-1 is added to read as follows:


Sec.  1. 6039I-1  Reporting of certain employer-owned life insurance 
contracts.

    (a) Requirement to report. Section 6039I requires every taxpayer 
that is an applicable policyholder owning one or more employer-owned 
life insurance contracts issued after August 17, 2006, to file a return 
showing the following information for each year the contracts are 
owned--
    (1) The number of employees of the applicable policyholder at the 
end of the year;
    (2) The number of such employees insured under such contracts at 
the end of the year;
    (3) The total amount of insurance in force at the end of the year 
under such contracts;
    (4) The name, address, and taxpayer identification number of the 
applicable policyholder and the type of business in which the 
policyholder is engaged; and
    (5) That the applicable policyholder has a valid consent for each 
insured employee (or, if all such consents are not obtained, the number 
of insured employees for whom such consent was not obtained).
    (b) Time and manner of reporting. Applicable policyholders owning 
one or more employer-owned life insurance contracts issued after August 
17, 2006, must provide the information required under Sec.  6039I by 
attaching Form 8925, ``Report of Employer-Owned Life Insurance 
Contracts'', to the policyholder's income tax return by the due date of 
that return, or by filing such other form at such time and in such 
manner as the Commissioner may in the future prescribe.
    (c) Effective/applicability date. These regulations are applicable 
for tax years ending after November 6, 2008.


Sec.  1.6039I-1T  [Removed]

0
Par. 3. Section 1.6039I-1T is removed.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: October 16, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-26424 Filed 11-5-08; 8:45 am]
BILLING CODE 4830-01-P