Tax Treatment of Life Insurance Proceeds (Currently Unavailable)

Author: Paul J. Winn

Tax Treatment of Life Insurance Proceeds discusses the income tax treatment of death benefits and living proceeds from life insurance contracts. It considers the statutory definition of life insurance contained in Internal Revenue Code §7702 and the tax consequences of a life insurance contract’s failure to meet the definition.

It also addresses the general rules governing the taxation of life insurance policy death benefit proceeds and examines the consequences of: a transfer for value; inclusion of a policy in a qualified plan; corporate-owned life insurance; and the payment of death benefits under a settlement option. The course also discusses the tax treatment of proceeds received under viatical settlements and accelerated death benefits.

In addition, it considers the modified endowment contract (MEC) rules, the tax consequences of a life insurance policy’s MEC status, the tax treatment of policy loans, withdrawals and surrenders and the tax treatment of proceeds received under life settlements.

Publication Date: November 2016

Designed For
Tax practitioners; including Enrolled Agents and Registered Tax Return Preparers.

Topics Covered

• Income tax treatment of death benefits
• Living proceeds from life insurance contracts
• Definition of life insurance contained in Internal Revenue Code §7702
• Tax consequences of a life insurance contract's failure to meet the definition
• General rules governing the taxation of life insurance policy death benefit proceeds
• Consequences of: a transfer for value; inclusion of a policy in a qualified plan; corporate-owned life insurance; and the payment of death benefits under a settlement option
• Tax treatment of proceeds received under viatical settlements
• Accelerated death benefits
• Modified endowment contract (MEC) rules
• Tax consequences of a life insurance policy's MEC status
• Tax treatment of policy loans
• Withdrawals and surrenders
• Tax treatment of proceeds received under life settlements

Learning Objectives

• Identify the income tax treatment of death benefits and living proceeds from life insurance contracts
• Recognize the general rules governing the taxation of life insurance policy death benefit proceeds
• Evaluate the consequences of a transfer for value, inclusion of a policy in a qualified plan, corporate-owned life insurance, and the payment of death benefits under a settlement option
• Identify the tax treatment of proceeds received under viatical settlements and accelerated death benefits
• Calculate includible gain resulting from various life insurance policy transactions
• Identify changes to customary tax treatment of life insurance proceeds on a policy becoming a MEC
• Calculate the includible death benefit gain when life insurance policy was transferred for a valuable consideration or included in a qualified plan
• Recognize tax-free life insurance exchanges
• Define "terminally-ill" and "chronically-ill" as used in HIPAA
• Identify income tax treatment of accelerated death benefits, viatical settlements and life settlements

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
None

Advance Preparation
None