Basic Taxation for ICOLI

ICOLI can provide improvements to your investment returns, but how is this asset treated for tax purposes?

ICOLI Taxation

ICOLI is a tax-preferred asset. (See IRC secs. 7702, 72(e), and 101(j))

Taxation

• • Investment into the contract is not tax-deductible. (IRC sec. 264(a)(1))
  • Investment yield is not currently recognized. (IRC sec. 72(e))
  • Investment reallocation is not a taxable event. (See IRC sec. 72(e))
  • No deferred tax liability is carried by the purchasing carrier.
  • Surrendering an ICOLI contract will result in gain recognition. (IRC sec. 72(e))
  • Holding contracts to the death of an insured converts gain to tax-free proceeds. (See IRC 101(j))

Tax Reporting and Compliance

• • ICOLI must meet the Internal Revenue Code section 7702 definition to receive the above-stated tax treatment. (See IRC sec. 7702)
  • COLI Best Practices Act must be followed to receive the above-stated tax treatment. (IRC sec. 101(j))
  • Filing form 8925 is required annually. (IRC sec. 101(j))

If your goal is to increase returns without increasing underlying investment risk, then consider ICOLI.

 

Would you like to explore how ICOLI can affect your company’s portfolio returns? Please reach out or schedule a call via this link.