Split Dollar Life Insurance - Taxation of CSV ?

[Guest Mazzu]

Hi -

I was hoping somebody to help me out with a life insurance (CSV) value question.

An individual has a collateral assignment split dollar life insurance arrangement with their employer. The policies premiums are paid in full. Taking advantage of the Final Reg. provided safe harbor, the policyholder decides to convert the arrangement to a loan arrangement and pay imputed interest on the amount of ER paid premiums.

My question is: If the executive decides to cash in the policy (say three years after making the election) does he/she pay tax on the cash surrender value?

Thanks for the help!

Mazzu

[Guest Harry O]

Yes, to the extent that the CSV exceeds the employee's basis.