The IRS has issued Notice 2009-48 outlining the reporting and notice obligations for employer-owned life insurance policies. The new rules become effective June 15, 2009.

The Pension Protection Act of 2006 (PPA) added Internal Revenue Code sections 101(j) and 6039I, to require employers holding certain life insurance policies on employees and directors (commonly known as “COLI” or “BOLI” policies – corporate-owned or bank-owned life insurance), to provide notice of certain policies’ existence to the insured employees and directors and also to provide notice of certain policies to the IRS. Notice 2009-48 implements these requirements for policies issued after August 17, 2006. Code section 101(j) also restricts the tax exclusion for amounts received from these policies where employee consent is not obtained.


What Life Insurance Policies Are Subject to These New Rules?

If a life insurance contract is owned by a business, or a person engaged in a trade or business, if the owner is a beneficiary of the life insurance contract (directly or indirectly), and if the individual whose life is insured is an employee (or offi cer, director, or independent contractor) of the owner (or of a related business) at the time the policy is issued, the contract is potentially subject to the new rules.

The new rules do not cover contracts owned by a qualified plan or welfare benefi t trust, but they do cover contracts held in a grantor trust, if the assets are treated as owned by the employer. The new rules also do not cover contracts owned by the owner of a business (for example, for the purpose of fi nancing the purchase of another owner’s equity interest in the event of the other owner’s death), or contracts held by a sole proprietor on his or her own life.


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