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Tax Treatment of Premium Payments

   

Added on  2019-09-30

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MEMOFrom: Tax expertTo: Attorney HoraceDate: 10 April 2018Subject: Tax treatment of premium payments under proposed plan of divorce agreement.Horace,In this case, the husband (Nathan) and wife (Maranda) have agreed to get divorced. As part ofthe divorce agreement, Maranda would like to have Nathan’s insurance policy on his own lifeassigned to her. If this happens, Nathan would continue to bear the burden of premium payments on the life insurance policy even as this assignment of the life insurance policy willmake Maranda an irrevocable beneficiary of the life insurance policy. The tax treatment in this instance would be guided by Rev. Rul. 70-218, 1970-1 CB 19 and Rev. Rul. 57-125, 1959-1 CB 27.It has been held by Rev. Rul. 57-125, 1959-1 CB 27 that if a husband, in order to honor any property settlement clause of a divorce decree, makes for the benefit of his divorced wife, anypayments of premiums on a life insurance policy which has not been assigned to her, his suchpayments of premium will not qualify as payments toward alimony. Accordingly, the husband will not be allowed to deduct these payments as alimony payments in his tax return. Also, the divorced wife will not be subject to tax just because the husband paid premiums on a life insurance policy because the life insurance policy has not been assigned to the divorced wife and thus, she remains bereft of the status of an irrevocable beneficiary of the policy.It has been held by Rev. Rul. 70-218, 1970-1 CB 19 that when a husband assigns a life insurance policy on his own life to a divorced wife under a divorce decree, the absolute
Tax Treatment of Premium Payments_1

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