As we’ve reported in previous Memos, on January 9, 2001, the IRS issued Notice 2001-10, proposing rather radical, negative changes in the tax treatment of split dollar life insurance plans.  Naturally, Notice 2001-10 drew the ire of employers, practitioners and the insurance industry.   Yesterday, the IRS issued Notice 2002-8 revoking Notice 2001-10.

Notice 2002-8 provides significant, but complex, relief from some of the more onerous provisions of Notice 2001-10, and requires employers to review a series of options and make  certain elections before the earlier of the issuance of final SDLI regulations or 2004.

The best news in the Notice is the IRS statement that “the proposed regulations ... will be effective for arrangements entered into after the date of publication of final regulations”.  The Notice goes on to provide various alterative tax treatments for various types of SDLI plan designs that offer special opportunities to employers and participants.

Among these alternatives are limited opportunities to use the old PS-58 approach, the ability to treat premium payments as below market loans, and the ability to terminate existing plans in a manner that might make “tax sense” under certain circumstances.

Please contact us if you have any questions about the impact of this important development on your SDLI plan.  For those of you who called asking for guidance after January 9, 2001 and who we advised to do nothing until more is known, now would be the time to take definitive action (before the issuance of final regulations forecloses certain opportunities).

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