Profiting from death? Lawsuit filed in Wal-Mart life insurance case

Houston Chronicle ^ | April 15, 2002 | L.M. SIXEL

[tdscpa]

"Debt" is not deductible.

[ValerieUSA]

from the article:
Wal-Mart borrowed money from the insurers to pay the premiums, which the company was able to write off as a business expense on its federal taxes.

[tdscpa]

Well, the article says the IRS disallowed Camelot's tax deduction. Perhaps the IRS did not catch Wal-Mart, yet, since they are apparently hiding this from everyone.

[wardaddy]

The following is from a site called smbix.com:

Premiums on certain life insurance: You can deduct premiums on life insurance policies if the corporation is the beneficiary. That applies to term life and premiums on keyman whole life policies to the extent they exceed the increase in the cash surrender value.

I'm sure like all tax code there is plenty of ambiguity in the big picture which will naturally benefit the IRS.

Ironically, I'm meeting my tax/financing advisor tommorow and will ask him. My bank is waffling over carrying a construction loan to commercial perm at prime(payments to be set fixed on todays rate..4.62%) for a 5 year balloon.(20 year amor.) No suprise there...LOL. They don't want to get "upside down" if rates rise which of course they will eventually. I asked my banker if he would have given me the same consideration had the prime risen in his favor during the construction loan term period. LOL...Banks...can't live with 'em...can't live without 'em...at least not in commerical real estate development. Scalawags.

tdspca:, I'm not questioning your knowledge...I just want to know more about this.

Regards.

[tdscpa]

I would like to read more about this, however, my browser can not find smbix.com.

[ValerieUSA]

bump

[Aquinasfan]

I recall my late wife telling me that, at least in Illinois, third-party life insurance requires the consent of the 'insured'. I don't think there must be an insurable interest necessarily, but I don't think secret policies are kosher.

I think it says somewhere in the article that the employees were told about and signed onto a $5000 "free" death benefit without realizing that Walmart would get the rest of the $64k.

[tdscpa]

Note the last line of the article: Wal-Mart has cancelled its policies...

Perhaps they discovered they can not deduct the premiums and can therefore not justify the program on economic grounds.

[wardaddy]

After my meeting today with my finance/tax advisor: You Sir are quite right about what you stated on deducting the premiums as a business expense. Nope, can't do it except in a few instances of "split???...I've forgotten...policies.

You da man!!!!

[tdscpa]

Thank you. I used to know this stuff pretty well. However, since retirement, my knowledge is getting outdated.

Could your agent have said "split-dollar insurance"? That is the only "split" insurance I can think of. Under that type of plan, the employer buys a whole-life policy on an employee, and pays the part of the premium that is equal to the annual increase in cash surrender value. The employee pays the rest (the pure insurance part). The employee gets the equivalent of term insurance at a lower cost, and his beneficiary collects the policy proceeds, less its cash surrender value. The employer just builds up an asset (the cash surrender value) which it recovers at the employee's death. There really isn't any tax deductible life insurance here that I can see, just a legal subsidy of an employee's life insurance.

[narses]

I agree. Where is the insurable interest?

[parsifal]

They're a bunch of friggin ghouls! I hope every company that does this gets class-actioned to pieces. parsy.

[Prototype01]

My personal opinion, it's unethical and morally unjustly. All companies should survive on ethical ground rules. I found out through a valuable source that COLI's are purchased for all employees, not just low-leveled. Yes, there's a tax break because the premiums companies pay out are supposed to benefit the employee's family. We are talking about how many cases versus how many actual COLI policies exist. I mean, it's great to bring a few situations and legal suits to the front page; however, I'm sure there are thousands upon thousands of companies out there that do not participate in these actions.

[Prototype01]

Hey Val-check out the Wal-Mart statement of ethics:
http://members.aol.com/vtpa/wmethics.html

[ValerieUSA]

I wasn't referring to the premiums as non-taxable, but to the pay-offs. Also the loans taken out to buy the premiums were a business tax writeoff.

[ValerieUSA]

Wow -- this is an OLD thread!

[Balding_Eagle]

Someone could take out a policy on your life, and you'd never know it.

Stop spreading lies. Every insured MUST sign the application.

Re post #2 for more info.

[Balding_Eagle]

but insurance companies apparently have been successful lobbying in most states to allow this kind of transaction.

It's one thing to bash WalMart, it's another to spread lies, half truths, and unsupportable allegations while doing so on FR.

Stop already, you are staining the threads.

[Balding_Eagle]

Seesh, I just looked, this is from the Houston Chronicle? Yeah, now THERE'S a reliable source.

[ValerieUSA]

It's also a very old story.
Why not find a follow up on this court case before accusing people of lies......