A New Model for Identifying Basis in Life Insurance Policies: Implementation and Deference

79 Pages Posted: 8 Jun 2006 Last revised: 2 Aug 2014

See all articles by Jay A. Soled

Jay A. Soled

Rutgers University

Mitchell M. Gans

Hofstra University - School of Law

Date Written: August 1, 2006

Abstract

The life insurance marketplace has changed significantly. Many insureds who once held their policy until death or surrendered it to the issuing company during life now instead sell it to a third-party investor. As a result, the computation of a policy's tax basis has become increasingly important. Yet, surprisingly, the Code fails to provide a methodology for making this determination. The IRS has endorsed one approach in its published guidance but has failed to adhere to it in its private letter rulings. This paper calls for a new model. After suggesting legislation, the paper explores alternative implementation strategies against the backdrop of deference jurisprudence. It concludes that, absent legislation, the IRS should withdraw its published guidance and incorporate the proposed model in regulations.

Keywords: Deference, Premium Financing, Tax Basis Identification

Suggested Citation

Soled, Jay and Gans, Mitchell M., A New Model for Identifying Basis in Life Insurance Policies: Implementation and Deference (August 1, 2006). 7 Florida Tax Review, 569 (2006), Hofstra Univ. Legal Studies Research Paper No. 06-16, Available at SSRN: https://ssrn.com/abstract=907280

Jay Soled (Contact Author)

Rutgers University ( email )

1 Washington Park
Newark, NJ 07901-1825
United States
(973) 353-1727 (Phone)

Mitchell M. Gans

Hofstra University - School of Law ( email )

121 Hofstra University
Hempstead, NY 11549
United States
(516) 463-5876 (Phone)

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