Rev. Rul. 73-174

Advice has been requested regarding the inclusion in gross income of the cost 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. The employer also makes available to employees who are covered with the maximum of $50,000 of insurance under the plan, additional group-term life insurance the cost of which is shared by both the employees and the employer. The portion of the cost of such additional insurance that is paid for by the employer is included in the employees' gross incomes under section 79(a) of the Code.

The taxpayer, an employee of the above employer, was covered by the maximum protection of $50,000 provided him and had purchased the additional insurance made available by the employer. The taxpayer made an irrevocable assignment of all his rights under the foregoing insurance and under this assignment, the assignee had the obligation to pay all subsequent premiums otherwise due from the employee.

The question presented is whether, after the taxpayer assigned his rights under the insurance, he is required to include in his gross income the cost of the insurance paid by his employer that exceeds the sum of the cost of $50,000 of such insurance and the amount paid by the assignee.

In Revenue Ruling 71-587, 1971-2 C.B. 89, it is held that premiums on group-term life insurance provided by an employer for coverage in excess of $50,000 are not included in the employee's gross income where such premiums are paid by a family member to whom the employee has assigned the insurance. In that case, the employee purchased supplemental coverage under his employer's group-term life insurance plan, and none of the cost of the insurance in excess of $50,000 was paid for by the employer. The situation in Revenue Ruling 71-587, differs from that in the instant case, since the assignee here pays only a portion of the cost of the additional insurance, the employer having agreed to pay the remaining portion.

Under section 61 of the Code, except as otherwise provided by law, and section 1.61-2(d)(2)(ii) of the Income Tax Regulations, compensation paid, other than in cash, such as life insurance premiums paid by an employer on the life of an employee are includible in the gross income of the employee. The insurance, in the instant case, is provided by reason of the employment of the insured, and the taxpayer's assignment of his rights under the policy cannot change the incidence of taxation. See Helvering v. Paul R. G. Horst, 311 U.S. 112 (1940), Ct. D. 1472, 1940-2 C.B. 206, where the Supreme Court of the United States stated: "The power to dispose of income is the equivalent of ownership of it. The exercise of that power to procure the payment of income to another is the enjoyment and, hence, the realization of the income by him who exercises it."

Accordingly, the cost of the insurance paid by the employer, in the instant case, that exceeds the cost of $50,000 of such insurance is includible in the taxpayer's gross income notwithstanding the taxpayer's assignment of his rights under the insurance.