Evening star., 1932-01-11
D. c. INSURANCE MEN
GIVEN TAX RULING
Members of Underwriters As.
sociation Informed of Fed
eral Laws.

Copies Of an opinion of Commissioner
of Internal Revenue Burnet on tax
ability OF life insurance proceeds under
Federal estate tax law have been for
warded to members of the District of
Columbia Life Underwriters Associa-
ton by David S. Bethune, president Of
the association.
AS there has been a great deal of
discussion as to the taxability under
Federal revenue acts of proceeds OF life
insurance policies, Mr.. Bethune has cir
culated the information. contained in a
letter received by Julian S. Myrick
chairman Of the special Committee on
Federal Estate Taxation Of the National
Association of Life Underwriters, from
Commissioner Burnet.
Letter on Insurance Tax.
The letter states, in part:
During recent months there has been
a marked increase in the activity Of a
certain group of life insurance agents
who are attempting to place policies of
insurance under plan whereby COM
plete exemption from Federal estate tax
and Federal income tax may be secured.
The plan is, briefly, as follows: Mr..
A now carries large amount Of insur-
ance on his own life, for which he ap-
piled and for which he has paid all
premiums to date. He is advised to sur
render all of this insurance and to have
Mrs A, the beneficiary, apply for and
purchase an absolute owner policy on
his life, all premiums to be paid by her.
It is contended that in the event OF the
death of Mr.. A all over $40,o00 OF the
hn
will be subject to Federal estate tax,
and that there is no method of legally
obtaining exemption of all the proceeds
from this tax except by means OF an
absolute assignment for value re-
ceived.'
Conditions Involved.
Furthermore, it Is contended that II
such an assignment Is made, the excess
CT the proceeds over such valuable con-
sideration and subsequent premiums
paid by the transferee Will be suoJect
to Federal income tax. 1t is claimed,
however that bv the use of the 'abso-
lutte owner policy no Federal estate or
income tax will be payable at the death
of Mr.. A. thus effecting considerable
tax saving.
"Under the existing estate tax regu-
lation (that is, article 27, Regulations
10. 1929 Edition, as amended by T. D.
4296, promulgated August 3, 1S3o),
where the decedent does not retain
until his death any of the legal Incl
dents of ownership in policies OF in
surance taken out by himself, the pro-
ceeds of such policies are not required
to be included in the gross estate
of the decedent under the insurance
provisions of the estate tax law. Fur
thermore, the proceeds Of insurance
paid by reason Of the death CT the IN
sured are wholly exempt from income
tax under the existing income tax law,
except that in the case of transfer
for valuable consideration, by assign
ment or otherwise, of life insurance,
endowment or annuity contract, or any
interest therein, only the actual value
of such consideration and the amount
of the premium shall be exempt from
taxation.
Conditions of Exemptions.
"It may be stated, therefore, CD that
where the insured under a life 1nsur-
ance policy taken out by himself abso-
lute1y and irrevocably disposeS OF all the
legal incidents Of ownership tnereln
other than by teStamentary dlsposl-
tion. the proceeds of such policy are not
taxable as part OF his gross estaee unoer
the provisions of the estate tax law, and
~ that where such disposition does, not
take the form of transfer for valua-
able consideration, the entire proceeds
of the policy paid by reason of the
death of the insured are exempt from
taxation under the income tax law.
"Manifestly, then, no substantial BEN
eft from the point Of view of tax is to
be obtained by the surrender of exist
ing life insurance policies in favor Of
so-called absolute owner policies."