Trusts and Estates

Ca. Trs. & Estates Quarterly Volume 8, Issue 4, Winter 2002

WHAT A LONG STRANGE TRIP IT’S BEEN: The Past, Present and Future of Equity Collateral Split-Dollar

By Ellen H. Whelan, Esq.* and Kristopher E. Storti, Esq.*

In 1964 the Internal Revenue Service ("IRS") issued Revenue Ruling 64-328, which governed the taxation of all split-dollar arrangements for approximately 37 years. After the issuance of Notice 2001-10, Notice 2002-8 and the split-dollar proposed regulations, it appears that the sleeping giant has awoken. The IRS now has scrapped the all-inclusive taxation regime of Revenue Ruling 64-328, opting instead for complex mutually exclusive tax regimes saturated with new definitions, exceptions and unanswered questions.

The proposed regulations appear to apply to any and all versions of split-dollar arrangements (i.e., private split-dollar, reverse split-dollar, equity compensatory split-dollar, non-equity compensatory split-dollar etc.). This article focuses almost exclusively on the most prevalent of split-dollar arrangements, the compensatory equity collateral assignment split-dollar arrangement ("equity collateral split-dollar"), discussing "how we got here," the new rules as set forth in the proposed regulations and several future options for existing arrangements.


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