Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, October 20, 2007

IRS cautions about trust arrangements presented as welfare benefits


The Internal Revenue Service has recently issued two Notices and a Revenue Ruling, urging taxpayers to exercise caution with regard to certain trust arrangements sold to small businesses as welfare benefits. The IRS has also identified some of these arrangements as listed transactions.

Below excerpts from IR-2007-170, irs.gov, Oct. 17, 2007, summarizing these issues:

In Notice 2007-83, the IRS identified certain trust arrangements involving cash value life insurance policies, and substantially similar arrangements, as listed transactions.  If a transaction is designated as a listed transaction, affected persons have disclosure obligations and may be subject to applicable penalties.* * * 

In Notice 2007-84, the IRS cautioned taxpayers that the tax treatment of trusts that, in form, provide post-retirement medical and life insurance benefits to owners and other key employees may vary from the treatment claimed.  The IRS may issue further guidance to address these arrangements, and taxpayers should not assume that the guidance will be applied prospectively only.

[T]he IRS also issued related Revenue Ruling 2007-65 to address situations where an arrangement is considered a welfare benefit fund but the employer’s deduction for its contributions to the fund is denied in whole or part for premiums paid by the trust on cash value life insurance policies.


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