May 1, 2005 12:00 PM, Rorie M. Sherman Editor in Chief

By: Rorie M. Sherman Editor in Chief

The Internal Revenue Service issued Revenue Procedure 2005-25 on April 8, providing additional guidance on determining the fair market value (FMV) of a life insurance contract distributed by a qualified plan or an employer. We have this report from Richard L. Harris, president of BPN Montaigne LLC in Clifton, N.J. and Charles L. Ratner, national director of Personal Insurance Counseling at Ernst & Young in Cleveland:

The new revenue procedure only slightly liberalizes the rules for valuing an insurance contract distributed from qualified plans. Taxpayers can reduce the value of the contracts by some amount of the surrender charge. But the new regs cap the amount of the allowable surrender charge at 30 percent, and that's based upon a complicated formula averaging out the future 10 years charges and projected cash values. So this new guidance by no means breathes new life into such strategies as “pension rescue” plans, which use artificially depressed values of a life insurance policy to take assets out of a taxable account on a favorable basis.

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