ICOLI can provide improvements to your investment returns, but how is this asset treated for tax purposes?
ICOLI is a tax-preferred asset. (See IRC secs. 7702, 72(e), and 101(j))
- 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.
Who is MBS?
MBS is a highly specialized corporate consulting firm with more than $13 billion dollars of our clients’ corporate investments. We manage over 225 corporate ICOLI and nonqualified plans. Importantly, we do not replace your current investment advisors.
Jacob Bosacki, JD
Variable Universal Life insurance combines the protection and tax advantages of life insurance with the investment potential of a comprehensive selection of variable investment options. The insurance component provides death benefit coverage and the variable component gives you the flexibility to potentially increase the policy’s cash value.
The materials are designed to convey accurate and authoritative information concerning the subject matter covered. However, they are provided with the understanding that Mullin Barens Sanford Financial does not engage in the practice of law, or give tax, legal or accounting advice. For advice in these areas, please consult your appropriate advisors.
© 2021 Mullin Barens Sanford Financial and Insurance Services, LLC. All Rights Reserved.
2242 Purdue Avenue, Los Angeles, California 90064 | Website: www.mbsfin.com
Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. #3553187.1