Corporate Alternative Minimum Tax: Implications For Corporate-owned Life Insurance
INSURANCE tax that exhibits direct impact on the book income preference. Beginning with the year 1990, the book income preference became equal to 75% of the excess of current adjusted earnings of the alternative minimum taxable income (AMTI). Book income preferences are affected by corporate-owned life insurance in the following situations:
- If the insured dies, the excess of the life insurance policy's DEATH BENEFIT over the CASH SURRENDER VALUE becomes book income to the corporation.
- If the insurance policy's annual premium exceeds the increase in the cash surrender value for a particular year, the result is a decline in the book income and thus a decline in the corporation's exposure to the alternative minimum tax (AMT).
- Conversely, if the insurance policy's cash surrender value exceeds the increase in the annual premium for a particular year, the result is an increase in the book income and thus an increase in the corporation's exposure to the alternative minimum tax.
Generally, if the corporation in any given year has taxable income, corporate-owned life insurance results in an alternative minimum tax liability if a significant death benefit is paid to the corporation upon the death of the insured. The result is that the alternative minimum tax will cause a reduction in the net death benefit from the life insurance policy paid to the corporation.
Popular Insurance Terms
The definition of contract of adhesion or, as it is also known, an adhesion contract is explained as an agreement between two parties where one party has more power than the other when the ...
Holding of property, or otherwise acting on behalf of another in trust. The fiduciary must exercise due care in safeguarding property left under personal care, custody, and control. ...
Coverage that goes into effect when an employer who has self insurance has its total group health insurance claims attain a certain level, which is usually 125% of its annual projected ...
Figure in a mortality table derived by dividing the number of people alive at the end of a given year by the number of people alive at the beginning of that same year. ...
Trust in which a home is transferred directly to the children while the parent (s) remain in the home for a fixed period of time, resulting in a substantially reduced estate tax cost. These ...
Disability in which a wage earner is forever prevented from working at full physical capability because of injury or illness. ...
Principle of equity in property, casualty, and health insurance. When two or more policies apply to the loss, each policy pays its part of the loss, unless its terms provide otherwise. For ...
Life insurance policy clause. If at the end of the grace period the premium due has not been paid, a policy loan will automatically be made from the policy's cash value to pay the premium. ...
Period, set by law, after which a damage claim cannot be made. Limits are set by individual states and usually range from one to seven years. ...
Have a question or comment?
We're here to help.