Rev. Rul. 54-52

Advice is requested whether the last sentence of section 39.22(a)-3 of Regulations 118, is applicable to premiums paid by a qualified employees' trust under a group life insurance contract which affords term insurance protection only.

The last sentence of section 39.22(a)-3, supra , states that `Premiums paid by an employer on policies of group life insurance covering the lives of his employees, the beneficiaries of which are designated by the employees, are not income to the employees.' However, the application of this statement of the regulations, as it appeared in section 29.22(a)-3 of the prior Regulations 111, was qualified and explained by Mimeograph 6477, C.B. 1950-1, 16. Paragraph 8 of this mimeograph, relating to employees' trusts, provides in part that `So much of a premium so paid as is used for current life insurance protection for an employee and is paid from contributions of the employer or earnings thereon constitutes income to the employee for the year when paid * * *.' This statement is in conformity with the provisions of section 39.165-6 of Regulations 118, promulgated under section 165(b) of the Internal Revenue Code, which governs the taxability of beneficiaries with respect to distributions received from a qualified employees' trust under section 165(a) of the Code. It will be noted that section 39.22(a)-3, supra , relates to premiums paid by employers, whereas, section 39.165-6, supra , governs the tax consequences of insurance protection purchased by an employees' trust for its participants.

Funds contributed by an employer to an employees' pension, profit-sharing or stock bonus trust are deemed to be compensation for services rendered as indicated in section 23(p) of the Internal Revenue Code. Amounts distributed or made available are includible in the distributees' gross income for the year so distributed or made available to the extent and in the manner prescribed under section 165(b) of the Code. Payments made by an employees' trust as a premium for life insurance protection of a participant of the trust constitute a distribution by the trust. See Raymond J. Moore et al. v. Commissioner , 45 B.T.A. 1073.

It is held that funds used to provide term life insurance protection for the trust participants under a group life insurance contract are currently includible in the gross income of the employee-participants under the provisions of section 165(b) of the Code.