Insurance: No section 79 imputed income | KPMG | GLOBAL

Insurance: No section 79 imputed income for optional coverage

Insurance: No section 79 imputed income

The IRS publicly released a private letter ruling* concluding that a life insurance company was permitted to treat optional insurance coverage as a separate policy from its group term life insurance coverage such that the optional insurance was not treated as “carried directly or indirectly” by the company; therefore, no income would be imputed under section 79. PLR 201542003 (release date October 16, 2015, and dated July 6, 2015)


Related content

Read text of PLR 201542003 [PDF 47 KB]

*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.


The taxpayer, a life insurance company, provides basic group term life insurance coverage for its employees at no cost to them. The taxpayer’s employees can also purchase (on an after-tax basis) optional group term life insurance. The rates charged to active employees are higher for those who use tobacco than for those who do not use tobacco, and the rates charged to those employees are all the same as, or below, the Table I uniform premium rates found in Reg. section 1.79-3(d)(2). 

The taxpayer represented:

  • The premiums charged for optional life insurance were determined independently of the basic coverage.
  • No premium loading expenses were allocated between the policies.
  • Dividends and rate credits for the policies were determined separately.

IRS ruling

The IRS noted in the private letter ruling that: (1) the taxpayer’s basic insurance coverage and the optional insurance coverage are available to the eligible employees; and (2) both the basic insurance coverage and the optional coverage are purchased from the same insurer. Therefore, the obligations contained in the taxpayer’s basic coverage and optional coverage would be treated as a single “policy” for purposes of section 79 unless the taxpayer satisfies the requirements to elect to treat such obligations as separate policies.  

As further explained, the only requirement for the taxpayer to treat the optional insurance as a separate policy is that the premiums must be properly allocated among the policies. If optional insurance coverage offered by the taxpayer is treated as a separate policy, the optional insurance on the life of an employee is not treated as “carried directly or indirectly” by the taxpayer and, thus, is not subject to imputed income under section 79.

Based on the information submitted and representations made, the IRS concluded:

  • The premiums for the basic insurance and the optional insurance are properly allocated so that the the taxpayer can elect to treat the optional insurance as separate from the basic insurance.
  • Provided that the taxpayer elects to treat the optional insurance separately from the basic, optional insurance on the life of an employee will not be treated as provided under a policy carried directly or indirectly by the taxpayer within the meaning of section 79(a).  Accordingly, no income will be imputed under section 79(a) to those employees purchasing the optional life insurance.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal