Guidelines should be drawn up by the U.S. Treasury Department to make the elderly aware of the possible tax consequences of stranger-originated life insurance (STOLI) arrangements, U.S. House Select Revenue Measures Subcommittee Chairman Richard Neal (D-MA) and Rep. Phil English (R-PA), ranking minority member, wrote in a recent letter to U.S. Treasury Secretary Henry Paulson. The lawmakers believe the Treasury should take action with regard to STOLI's tax liabilities, even though state laws governing these arrangements are outside the federal government's jurisdiction. STOLI transactions might involve split-dollar arrangements or come under cancellation of indebtedness rules, and there also are concerns about aggressive marketing tactics. The letter states, "In certain cases, the terms for the initial arrangement may not qualify as true indebtedness, thus exposing the insured to income inclusion. Also, depending on the value of the promotional incentive or cash payment, the insured could be taxed on the value of the promotion received. Depending upon the structure of the product, promoters may also be liable for information reporting." However, Reps. Neal and English do not want to put a damper on the secondary market for life insurance products.
Lawmakers Call for STOLI Tax Warnings
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National Underwriter (Life and Health Financial Services Edition) (12/03/07) Brady, Matt
