Tax Codes

Question 1

162

Answer 1

Allows a company to pay for life insurance premiums for its executives

Question 2

162(m)

Answer 2

A public company can deduct no more than $1 million of annual compensation for its top 5 executives

Question 3

83

Answer 3

Property is not taxable to the employee until substantial vesting or unrestricted transfer occurs

Question 4

83b

Answer 4

With an NSO (non-qualified stock option), by filing an 83(b) your unvested option will be treated as a vested option, for tax purposes.

Question 5

IRC 7702

Answer 5

Definition of Life Insurance – there are 2 tests: CVAT and GPT

Question 6

IRC 7702(a)

Answer 6

Policy becomes a Modified Endowment Contract (MEC) if it fails to meet the 7-pay test. A MEC is a life insurance policy that has had cumulative premium payments made during the 1st 7 years that exceed a limit defined in the tax code

Question 7

IRC 101(a)1

Answer 7

Death benefits of a life insurance policy are not taxable

Question 8

IRC 101(j)

Answer 8

Section added by the Pension Protection Act of 2006 (aka COLI Best Practices). It provides clear definitions of eligible executives and requirements to obtain consent to insure in order for the death benefit to be non-taxable.

Question 9

401(a)(17)

Answer 9

Maximum eligible compensation limit used for computing retirement benefits for defined benefit (e.g. pension, profit-sharing, stock bonus) qualified plans is $285k for 2020

Question 10

402(g)

Answer 10

Limitations on benefits and contributions under qualified plans

Question 11

415

Answer 11

Limits employee and employer contributions to $57k and benefits to $230k under qualified pension plans in 2020

Question 12

409A

Answer 12

409A was enacted in October 2004 as part of the American Jobs Creation Act and was generally effective on January 1, 2005 with final regulation effecting 1/1/2009. Major changes:

- defining change in control
- no unscheduled (or accelerated) withdrawals
- deferring receipt minimum of 5 years
- change timing for elections of performance based compensation

Question 13

IRC 72(e)(5)

Answer 13

Withdrawals up to basis and policy loans are income tax-free

Question 14

IRC 817(h)

Answer 14

Provides that the investments in the underlying variable contracts must be adequately diversified or they loose their favorable tax treatment. (Diversification test for separate account life insurance products)

Question 15

280(g)

Answer 15

Restricts golden parachutes

Question 16

453(b)

Answer 16

Installment sale defined–a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs.

Question 17

403(b)

Answer 17

A tax-sheltered annuity (TSA) program is a retirement plan for employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

Question 18

457

Answer 18

Eligible deferred compensation plans maintained by state and local governments and tax-exempt entities. They can be either eligible under IRC 457(b) or ineligible under IRC 457(f).

457(b)
Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years.

457(f)
compensation deferred to an ineligible plan is taxable to the participant or beneficiary as soon as the deferred amounts are no longer subject to a “substantial risk of forfeiture”

Question 19

79

Answer 19

Permits employers to offer group life insurance to their employees, but requires imputed income if DB > $50,000

Question 20

ERISA section 404(c)

Answer 20

Relieves the plan sponsor and other fiduciaries from liability for losses resulting from participants’ direction of their investments because participants must have access to investment materials, be able to make changes, and diversify

Question 21

419A

Answer 21

If employer contributions are deductible at all, they must be deductible under IRC 419

Question 22

IRC 264(a)(1)

Answer 22

If the corporation is the owner and beneficiary of a policy on an employee, then the premiums paid by the corporation are not deductible.

Question 23

IRC 264(f)

Answer 23

No deduction shall be allowed for that portion of the taxpayer’s interest expense which is allocable to excess cash surrender value or any loans

Question 24

IRC 265(b)

Answer 24

Requires financial institutions to allocate a portion of their interest expense to the purchase and maintenance of their tax-exempt municipal securities

Question 25

IRC 291(a)(3)

Answer 25

§ 291. Special rules relating to corporate pref-erence items(a) Reduction in certain preference items, etc.

(3) Certain financial institution preferenceitemsThe amount allowable as a deduction underthis chapter (determined without regard tothis section) with respect to any financial in-stitution preference item shall be reduced by20 percent.