SECTION 2. BACKGROUND

.01 Rev. Rul. 64–328, 1964–2 C.B. 11, held that the table of one-year premium rates set forth in Rev. Rul. 55–747, 1955–2 C.B. 228, commonly referred to as the “P.S. 58” rates, may be used to determine the value of the current life insurance protection provided to an employee under a splitdollar life insurance arrangement. Rev. Rul. 66–110, 1966–1 C.B. 12, amplified Rev. Rul. 64–328 in this respect by holding that the insurer’s published premium rates for one-year term insurance may be used to measure the value of the current life insurance protection if those rates are available to all standard risks and are lower than the P.S. 58 rates. Rev. Rul. 67–154, 1967–1 C.B. 11, modified Rev. Rul. 66–110 by holding that an insurer’s published term rates must be available for initial issue insurance (as distinguished from rates for dividend options) in order to be substituted for the P.S. 58 rates set forth in Rev. Rul. 55– 747. .02 Notice 2001–10, 2001–1 C.B. 459, revoked Rev. Rul. 55–747 and provided that, for taxable years beginning after December 31, 2001, the Treasury Department and the Internal Revenue Service would no longer treat or accept the P.S. 58 rates set forth therein as a proper measure of the value of current life insurance protection for Federal tax purposes. One concern expressed in Notice 2001–10 with regard to the P.S. 58 rates was that certain taxpayers were using P.S. 58 rates to understate the economic benefits provided under certain split-dollar life insurance arrangements, a practice never authorized by published guidance.

Notice 2001–10 set forth a new table of one-year term premiums, captioned as Table 2001, to determine the value of current life insurance protection on a single life pro

vided under a split-dollar life insurance arrangement for taxable years ending after January 29, 2001. Under Notice 2001– 10, Table 2001 is to serve as an “interim substitute” for the P.S. 58 rates. Notice 2001–10 also allowed taxpayers to continue to determine the value of current life insurance protection by using the insurer’s lower published premium rates that are available to all standard risks for initial issue one-year term insurance as set forth in Rev. Rul. 66–110, subject to additional limitations provided in that notice.

.03 Notice 2002–8, 2002–4 I.R.B. 398, revokes Notice 2001–10 and provides that, pending the consideration of comments and publication of further guidance, Rev. Rul. 55–747 remains revoked, as provided in and with the transitional relief described in Part IV.B.1 of Notice 2001–10. For split-dollar life insurance arrangements entered into before the effective date of future guidance, Notice 2002–8 allows taxpayers to use the premium rates in Table 2001 to determine the value of current life insurance protection on a single life. Notice 2002–8 also provides that taxpayers should make appropriate adjustments to the Table 2001 rates if the life insurance protection covers more than one life. For arrangements entered into before the effective date of future guidance, Notice 2002–8 provides that, to the extent provided by Rev. Rul. 66–110, as amplified by Rev. Rul. 67–154, taxpayers may continue to determine the value of current life insurance protection by using the insurer’s lower published premium rates that are available to all standard risks for initial issue one-year term insurance, subject to certain express limitations. Thus, until the publication of further guidance and subject to the narrow exception in Part III.1 of Notice 2002–8, taxpayers may value the current life insurance protection by using either the premium rates in Table 2001 or the insurer’s published premium rates (as described in the preceding sentence), provided that those published premium rates are lower than the rates set forth in Table 2001 (hereinafter the “insurer’s lower published premium rates”).

.04 On July 9, 2002, Treasury and the Service published proposed regulations relating to split-dollar life insurance arrangements (67 Fed. Reg. 45414). The proposed regulations reserve on the valuation of eco

2002–36 I.R.B. 481 September 9, 2002

pose of establishing the value of the policy benefits conferred upon the trust for Federal tax purposes. Similar results obtain if the trust pays for all or a portion of its share of the policy benefits provided under the split-dollar life insurance arrangement.