life insurance hedge fund
The private placement life insurance is a preventive IRS tax audit strategy that transforms ordinary income and capital gains liabilities on income tax free (no income tax reporting required under current U.S. law). Please refer to IRS Letter private Government 200244001 (May 2 2002).
For U.S. persons with investment income, private insurance provides life line placement, tax-free earnings aggravated.
An insurance policy private placement is variable in nature, which allows the insurance company to invest most of the premium (s) in a separate account legally segregated to be managed by an investment manager or the customer's choice or the insurance company itself. There are no guarantees when is investment performance (as it varies, so does the death benefit, but with a fixed minimum).
The benefits of income tax are:
1. Assets inside a life insurance policy grows and compounds tax-free income.
2. Death benefit paid income tax free.
At the national level in the U.S., investors have traditionally used the tax benefits of life insurance policies to invest in variable investment funds. However, international policies of life insurance private placement allow users to invest in a wider range of investments, including funds hedge, private equity, derivatives and mutual funds (which are functionally no restrictions on the types of investments that can be held and managed within the policy).
Other benefits include the following:
1. Capital gains in the short term (41% federal tax and California): exempt from income tax.
2. Interest on bonds (at the rate of 41% normal rates of federal and California income) exempt from income tax.
3. Policies in certain jurisdictions (eg Cayman Islands): exempt from seizure by creditors.
4. IRS audit risks are minimized as assets qualifying under a life insurance are not subject to income tax or an obligation to report any income tax (under IRC ยง 72 (e) (5)). Besides the tax benefits and fund reporting for audit purposes would not have IRS alleged tax evasion, due to fact that life insurance has been granted an "exception angel" (ie a transaction is approved by the IRS) (IRS Revenue Procedure 2004-65, 2004-66, 2004-67, 2004-68).
5. Withdrawal of political life can be free of tax and are not subject to tax reporting (either as a return premium / or the basis of a loan). Modified Endowment Contract ( "MEC") rules may or may not apply depending on policy design.
About the Author:
Gary S. Wolfe is an international tax attorney specializing in asset protection, IRS audits and international litigation.
Gary S. Wolfe
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Article Source: ArticlesBase.com – Private Placement Life Insurance – An Irs Tax Audit Strategy
