PPLI & The Tax Code

 Webber Revealed: The Real Opinion

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What is commonly considered an aggressive tax strategy is when you take a section of the tax code and bend it in favor of a tax benefit. Our approach with Private Placement Life Insurance (PPLI) is to use the tax code sections that are pertinent to our structure as a guide to make the asset structure fully compliant with the code. No element of the tax code is bent or stretched to obtain a favorable result.

We use the tax code as a road map to be followed, and not something to be diverted or obfuscated in any way. Is it not preferable to rely on the tax code rather than an opinion letter from a law firm? This opinion letter is just their interpretation of the tax code. Why rely on opinion when you can base your asset structure on the language of the tax code itself?

Those who call our firm’s PPLI structures aggressive do not fully understand the tax code, although they present themselves as experts who do. What you find in their articles is the same misunderstandings regurgitated time and time again, until, in the end, they are believed to be truths.

These misunderstandings are also repeated time and time again at the usual PPLI conferences that are held throughout each year, which entrenches these misconceptions and half truths about the true nature of the tax advantages of PPLI. In our next few articles, we will discuss the topic in detail, and give you the tax code sections, so you can prove our points for yourself.

We will also use the Webber decision, 144 T.C. No. 17 Docket No. 14336-11, because it has become part of these misconceptions and half-truths. The decision has not been fully understood as how it pertains to the PPLI structures that our firm has used to structure 100s of billions of dollars in assets successfully without any client or tax authority complaints of any kind.

Our future articles will elucidate these topics:

  • The real meaning of a section 7702(g) policy.
  • Do investor control issues pertain to a 7702(g) policy?
  • Do diversification issues under 817(h) pertain to a 7702(g) policy?
  • How is the constructive receipt issue relevant in the Webber decision?
  • The difference between code sections 7702(a) and 7702(g).
  • What did the tax court really decide in Webber?
  • A grantor trust vs. a non-grantor trust for ownership of a PPLI policy.
  • Why is our minimum premium is $100M for advanced asset structures (although we will sometimes make exceptions)?
  • Is there imputed income if the cash value drops on a 7702(g) policy?
  • What was conceded by the plaintiffs in the Webber case that seriously impacted the court’s decision?
  • Why do almost all our policies deliberately fail section7702(a) and are structured under section 7702(g)?
  • Did you know that section 7702(g) is not tied to any other code section, and why this is significant?
  • How do family attribution rules affect the structuring of a PPLI policy?
  • Can an asset be taxed if you don’t own it?
  • Was the Webber decision decided on the basis of a 7702(a) policy, a 7702(g) policy, or a FCV policy?
  • Why are our asset structures an excellent alternative to private foundations?

We look forward to bringing you these topics in the coming weeks, and as always, we welcome your questions and comments.

All the best, Michael.

 

by Michael Malloy, CLU TEP RFC.
CEO, Founder @EWP Financial

Michael Malloy-CLU-TEP