IRS Issues Proposed Regulations on BOLI Transfers

The Internal Revenue Service and the Treasury Department has issued proposed regulations related to new reporting rules for certain transfers of life insurance policies that were included in the 2017 tax reform law.

Among other things, the regulations provide needed clarity regarding circumstances in which bank owned life insurance polices are transferred as part of a bank merger or acquisition. In general, the guidance provides that tax-free transfers of policies between C corporations that do not have more than 50 percent of their assets in BOLI policies are not subject to the new reporting and income inclusion rules.

The American Bankers Association welcomed the guidance, noting that prior to its issuance, there was concern that tax benefits associated with the receipt of proceeds from transferred BOLI policies may not be eligible for exclusion from income. As M&A activity continues to pick up across the country, banks will benefit from having greater clarity in this area, ABA added. The association is in the process of reviewing the guidance and will work closely with its members to provide feedback.