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
Ending a pension plan at the election of an employer or sponsor. The employer has the unilateral right to change or terminate a pension plan at any time. However, the termination must meet ...
Document used to sign up employees for plans such as salary savings, life insurance, or other employee benefits. ...
Peril that occurs when personal property of two or more people is mixed to such an extent that any one owner can no longer identify his or her property. ...
Insurance sold by a stock insurance company that is usually in the form of nonparticipating insurance. ...
Situation involving a chance of a loss or no loss, but no chance of gain. For example, either one's home burns or it does not; this risk is insurable. ...
provision in a CASH VALUE INSURANCE policy that an insured will receive the equity in some form even if the insurance is canceled. vested benefit to a retirement plan participant. It is ...
Policy that has many similar characteristics to that of the survivor-ship annuity in that the annuitant receives a predetermined monthly income benefit for life upon the death of the ...
Insurance company that is licensed by a state to market and service particular lines of insurance in that state. ...
Condition in which life insurance sales increase at a rate greater than the general rate of growth of the economy. As a society moves from an agriculture-based economy to an industry-based ...
Have a question or comment?
We're here to help.