Rev. Rul. 71-587

Advice has been requested regarding the inclusion in gross income of certain premium payments made under a policy of group-term life insurance under the circumstances described below.

An employer furnishes its employees with a maximum protection of $50,000 of group-term life insurance under a plan of group-term life insurance within the meaning of section 79 of the Internal Revenue Code of 1954. Employees who desire insurance coverage in addition to that provided by the employer are permitted to purchase supplemental group-term life insurance at their own expense.

The taxpayer, an employee of the above employer, was covered by the maximum protection of $50,000 provided him by his employer, and had purchased supplemental coverage at his own expense. Subsequently, the taxpayer made a donative assignment to a family member of all of his rights under both the basic and supplemental insurance. Under this assignment, the donee had the obligation to pay all subsequent premiums othewise due from the employee for the supplemental coverage.

The question raised is whether the payments made by the donee for supplemental insurance on the taxpayer's life are includible in the taxpayer's gross income under section 79(a) of the Code.

Section 79(a) of the Code provides that there shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of the cost of $50,000 of such insurance and the amount (if any) paid by the employee toward the purchase of such insurance.

The Senate Finance Committee in its explanation of the group-term life insurance bill reported as follows:

* * * that the gross income of an employee for tax purposes is to include the cost of any group-term life insurance provided him under a policy carried directly or indirectly by his employer to the extent that the insurance coverage provided is in excess of $70,000 as contrasted to $30,000 under the House bill. The employee will not be charged with any portion of this insurance protection over $70,000 which he provides himself through his own contributions, since insurance protection provided in this manner is paid out of tax-paid dollars. Moreover, all contributions made by the employee are applied against insurance protection above the $70,000 exclusion level * * *

Senate Report No. 830, Eighty-eighth Congress, C.B. 1964-1 (Part 2), 505, at 550. (The $70,000 limitation referred to in the above excerpt was changed to $50,000 as the bill was finally enacted.)

Accordingly, it is held that the premiums paid by the donee in the instant case will be treated as "an amount * * * paid by the employee" for purposes of section 79(a) of the Code, and, as such, are not includible in the employee's gross income.