Rev. Rul. 55-14

Advice has been requested whether refunds of contributions of employees by the insurer of an employees' annuity plan constitute taxable income and whether an amount paid by the employer to the insurer as reimbursement for such refunds would be deductible from taxable income of the employer.

An employer, who had established an insured annuity plan, under which both the employer and the employees made contributions toward the funding of the benefits to be provided, now proposes to amend the plan to eliminate the requirement for employee contributions and to have the insurer return all contributions previously made by the employees to them and to reimburse the insurer for such refunds.

It is held that refunds made to employees under these circumstances would constitute return of premiums and therefore would not be taxable income to the recipients.

It is further held that the aggregate amount paid by the employer to the insurer, as reimbursement for the refunds to employees, would be considered as a supplementary cost of annuity credits and, as such, would be deductible from taxable income of the employer, under section 23(p)(1)(A)(iii) of the Internal Revenue Code of 1939, over a ten-year period, subject to applicable limitations of that section and to verification upon examination of tax returns involved.