VEBAs

[Don Levit]

Folks:

We had a discussion a while back regarding UBIT and tax-exempt income.

I did discover a Revenue Ruling, 76-337, in which a social club did not have to include in gross income interest on obligations of a State.

I have not found a revenue ruling regarding like insurance income as not being included in gross income.

Could this revenue ruling be used as a precedent?

Don Levit

[Ron Snyder]

What are UBIT-ching about?

Income interest on obligations of a State or its subdivision (commonly called "municipal bonds") are not subject to taxation and therefore also not subject to UBIT. While this ruling could not be used as a precedent, the fact that inside buildup in life insurance policies is also tax-exempt is sufficient to remove it from UBIT. This would NOT apply to other forms of "insurance income", only the cash value increase that remains in the insurance policy. And the analysis would not apply to annuities inside a VEBA.