Legal Memorandum: Lump-sum Payment as Type of Bonus

Issue: Under federal law, if an employer amends an employee life insurance benefit program and no longer requires employees to contribute to the premiums and offers a lump-sum payment as reimbursement for previous premiums paid, is there an argument that the lump sum payment is a type of bonus?

Area of Law: Insurance Law, Tax Law
Keywords: Lump-sum payment; Type of bonus; Reimbursement for previous premiums paid
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: None
Date: 02/01/2001

The lump-sum payment could be taxed as a "bonus" equal to the accumulated economic benefit  of the policy; i.e., the cumulative amount that would have been taxable as the excess premium amount over the P.S.-58 amount in years one through five.  See Lawrence Brody and Lucinda Althauser, An Update on Business Split-Dollar Insurance, 133 Trusts & Est. 10, at B-702 (Apr. 1994) (describing a modified PS-58 split with bonus).


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