IRS Looking into Tax Status of COLI

The IRS is looking into the tax status of corporate owned life insurance (COLI), which many employee ownership companies now use to handle repurchase liability. With COLI, a company buys life insurance on a large percentage of its covered employees, using the build-up in value to help fund its repurchase obligation. One tax wrinkle of the plan allows a company to borrow against this value (up to $50,000), deducting the interest. The IRS is now looking into whether this tax advantage should be sustained. COLI has periodically come under congressional or IRS scrutiny, but, so far, has withstood challenges.