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Buying Corporate-Owned Life Insurance Viewed As a Criminal Act

The Criminalization of Legitimate Business Activity

Buying Corporate-Owned Life Insurance Viewed As a Criminal Act

ElBruce says: Nobody should be able to take out an insurance policy on another person, period. That’s just gambling. October 3rd, 2009 at 12:12 pm Blogger on Think Progressive

Thomas E. Vass, Business Capital Advice

Michael Moore’s War on Capitalism

In his movie about the immorality of capitalism, Michael Moore describes the technique of “Dead Peasant Insurance,” where a company buys and owns a life insurance policy on lower-paid workers. The immorality, for Moore, lies in the financial interest the company creates on the death of the employee in order to recover the life insurance proceeds.

Several years prior to the release of Moore’s movie, the U. S. Congress had reformed the strategy of dead peasant insurance.

The Pension Protection Act of 2006 (PPA) changed the tax treatment of proceeds received under corporate-owned insurance (COLI) and implemented new procedures for tax reporting for policies issued after 2006.

For any COLI policies issued after August 17, 2006, corporate policyholders are required to file Form 8925 with the IRS on or before the due date of the policyholder’s tax return. The information required to be reported on Form 8925 includes:

  • The total number of employees covered at the end of the tax year

  • The number of employees covered under COLI policies

  • The total face amount of the COLI policies

  • An acknowledgement that the policyholder had valid consent form each employee covered by the COLI policy

The Notice and Consent requirements of the PPA requires, that prior to the issuance of the COLI contract, the emploerer must make certain that the insured employees is notified in writing that the employer intends to insure the employee’s life and the maximum death benefit for each COLI policy.

Part of the deception in Moore’s propaganda about capitalism is that he was well aware of the PPA reform, but chose not to mention it in his movie. His movie is based upon the deceit that corporations are still engaged in the practice of buying dead peasant insurance, as if the new law did not exist.

His deceit must be working.

The 2006 Reform Is Not Enough, Criminal Sanctions are Needed

Concurrent with the release of Moore’s movie in October of 2009, Representative Luis V. Gutierrez (D-IL), a Congressman form Chicago, introduced a bill aimed at criminalizing the strategy of buying a corporate-owned insurance policy. The Act would unequivocally prohibit the practice of taking out employer-owned life insurance on any employee earning less than $1 million per year.

His bill, H.R. 3669: Employer-Owned Life Insurance Limitation Act , prohibits employers from carrying employer-owned life insurance policies for employees who make less then $1,000,000 per year. Violations are punishable by criminal fines of $500,000 and up to one year of imprisonment.

The bill directs the Comptroller General to study and report to Congress on the incidence of all employers carrying employer-owned life insurance policies on their employees, and related matters. The bill prescribes criminal penalties for violation of this Act.

"Every day, 14,000 people in this country loose (sic) their health insurance,” said Gutierrez in his press release on his bill, “but instead of investing in the health, life and longevity of its employees, much of Corporate America is investing its resources in the deaths of its employees."

Like another famous elected representative from Chicago, Representative Gutierrez had been a community organizer prior to entering the political arena. Gutierrez was born in Chicago on December 10, 1953. He graduated from Northeastern Illinois University in 1977 with a degree in English and worked as a teacher, social worker, community activist and city official until his 1986 election as Alderman from the city's 26th ward.

While on the Chicago City Council, he led the fight for affordable housing, tougher ethics rules, and a law to ban discrimination based on sexual orientation.

From his perspective, the corporations who buy life insurance are not doing what Representative Gutierrez thinks they should be doing, and somehow, he connects buying corporate life insurance with the issue of employee health insurance.

Absent from his career resume and work experience is any association with private industry, or any working knowledge of the legitimate uses of corporate-owned life insurance. His bill criminalizes the act of buying a corporate-owned policy.

The approving quote on the introduction of H.B. 3669 from ELBruce, at the top of this article, comes from 150 like-minded bloggers, as reported on the web site for Think Progress.

Think Progress is a project of the Center for American Progress Action Fund. The Center for American Progress Action Fund is a nonpartisan organization. Through this blog, CAPAF seeks to provide a forum that advances progressive ideas and policies.

Think Progress was voted “Best Liberal Blog” in the 2006 Weblog Awards and chosen as an Official Honoree in the 2009 Webby awards. It was also named best blog of 2008 by The Sidney Hillman Foundation, receiving an award for journalism excellence. In 2009, Think Progress was named a “Gold Award Winner” by the International Academy of Visual Arts.

Think Progress is on the front lines in Michael Moore’s War on Capitalism.

A Legitimate Business Activity?

Under the provisions of the 2006 PPA reform, if the notice and consent requirements of the Act are met, the death benefits obtained under a COLI policy generally will be excluded from the Policyholder's gross income.

The Covered Person provision of the 2006 Act was an employee (defined for purposes of the PPA rules as an officer, director, or "highly-compensated individual") of the Policyholder at any time during the 12-month period prior to the Covered Person's death.

In other words, the 2006 reform eliminated the “dead peasants” from coverage.

Companies often buy corporate-owned life insurance to fund buy-sell agreements or to provide informal financing for nonqualified benefit programs, such as SERPs and deferred compensation arrangements. Sometimes, these arrangements are essential for retaining skilled executives during mergers and acquisitions.

Many of these companies choose company-owned life insurance (COLI) as the financing vehicle for legitimate activities because the growth in the COLI is tax deferred and the cash proceeds, when received by the company either as borrowings from the policies or as death benefits upon the death of the insured, are income tax free.

In addition, companies can recognize in their financial balance sheet statements the increase in cash surrender value each year as a cash asset of the corporation

Based on industry surveys from 2007, 75% of the Fortune 1000 companies finance their deferred compensation and executive benefit obligations with COLI programs; and of the 50 top banks and thrift institutions in the United States, 43 have implemented COLI programs.

As a part of the War on Capitalism, these legitimate business activities will be criminalized under H. B. 3669.

When They Came For The Gypsies…

Under the provisions of the 2006 PPA, even if the Covered Person for the COLI policy does not fall into one of the categories that qualify the policy proceeds as non-taxable, the Policyholder still may avoid tax liability if the proceeds of the policy are paid to the Covered Person's family or designated beneficiary or are used by the Policyholder to purchase the Covered Person's ownership interest in the Policyholder from the Covered Person's estate or beneficiaries.

The life insurance payment to the families or beneficiaries for the COLI policy will not be allowed under the provisions of H. B. 3669. Representative Gutierrez is silent on how these families are supposed to support themselves when the family bread winner dies.

In the absence of life insurance proceeds, the families would probably become dependent on government welfare payments for daily support.

This is one of Michael Moore’s goals in his War on Capitalism. In order to obtain the social equality so desperately desired by the Left, every citizen must become dependent on government. Then, everyone, except the political elites, can be forced to be equal and, for the Left, social justice will be obtained.

On the Wall at the Holocaust Museum in Washington the ending text is “And when they came for me, there was no one left to speak."

The Left is coming now for American private business owners, and H. B. 3669 is just the opening salvo for what they have in mind for the owners when they come to get them.

The agents of the State will round them up slowly, and then quietly put them in prison, until there is no one left to speak.

Their crime? They were guilty of engaging in legitimate private business activity, an act deemed a crime against the State. to Shut Down Permanently on December 31, 2017

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Thomas Vass
I help CEOs of small technology companies raise capital. I created an internet tool, called The Private Capital Market, that is categorized

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