Private Placement Life Insurance or PPLI’s are dominating most of our conversations with the ultra rich. These niche products have become more available, much less expensive, and much more flexible in the last few months.
Assets held in PPLI policies utilize the tax free life insurance provisions of the IRS code. When the policy holder passes away, their heirs inherit the policy’s contents on a tax free basis, the same way that a life insurance policy payout is also tax free.
The assets held in these policies can be borrowed against, the same way that a policy holder can get a loan off of a regular life insurance policy. Another option is for the asset to be rolled into other insurance products, further avoiding the proposed income tax increases.
PPLI rules are ridiculously complex in order for the policies to qualify as life insurance. If improperly funded and untested, the assets will create a large tax burden.
PPLI’s are a huge tax loophole, completely legal, and easily exploitable. From a political perspective, the loophole is almost impossible to close. Noone is ever going to take on the life insurance lobby and win. They’re just too powerful, having way too much money.
Let me leave you with this.
We’re getting a few IRS letters on returns that we did last year changing a refund or an additional amount due because of the Recovery Rebate Credit. This was where you received checks from the government for $1,200 or $600 per person last year, before the returns were completed.
We asked all of our clients how much money they received. If they told us the wrong amount, then the IRS changed the return and the refund or amount due.
This is all up to you. There isn’t any way that we can know what the government sent you, because this money goes into your personal accounts.
We have received three change letters so far, and will probably receive more.
Of course, they are now sending out monthly advance payments on the child tax credit. This will probably cause even more problems on the 2021 filings than we are having on last year’s.
We can only complete a return based upon the information that you provide. If you give us the wrong amounts on the payments, there is no way for us to complete the returns correctly. You’ll get a change letter from the service charging you additional tax and interest on the mistake.
Please keep track of what you are receiving so that we don’t have this problem next year as well.
We’re all going to get through this. Let’s get through it together.
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Accounting Solutions Ltd.
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