The Investor Control Doctrine Still Has Some Bite Left

A recent tax court decision has held that the investor control doctrine is still in effect.  In Webber v. Commissioner, the court held that because the taxpayer exhibited control over life insurance assets held in different accounts he could be held liable for taxation on those assets.  In 2003 the investor control doctrine was expanded to cover variable life insurance policies.  In the Webber case the taxpayer formed a grantor trust that purchased two variable life insurance policies that insured two elderly relatives.  The policy holder was supposed to an investment manager to make decisions and there were supposed to be restrictions on the policy holder to influence them, yet the tax court held that these restrictions were not followed.  This article discusses many of the implications of this recent tax court decision.

See John W. Weber, Jr., The Investor Control Doctrine: Alive and Well, The National Law Review, July 29, 2015.

Special thanks to Jim Hillhouse for bringing this article to my attention.