An employee who missed the deadline to sign the split-dollar-loan written representation gets 9100 relief, so his loan payments stay "noncontingent"

Plain-English summary

An employee of a tax-exempt nonprofit hospital took part in a split-dollar life insurance plan his employer set up on the advice of an outside consulting firm. Under the plan, the employer made premium loans to the employee that were nonrecourse (secured only by the insurance policy). Under the split-dollar regulations, nonrecourse payments are normally treated as "contingent," which changes the tax math, unless the borrower and lender sign a written representation that a reasonable person would expect all payments to be made. That signed representation has a deadline: generally the due date of the tax return for the year of the first loan. The plan administrator inadvertently failed to give the employee the representation to sign on time, so it was executed late. The employee asked the IRS for a discretionary extension (9100 relief) to make that representation. The IRS granted it. It found the employee acted reasonably and in good faith, having relied on the consulting firm and employer, and that the government's interests were not prejudiced (an independent auditor certified this because the assessment period had closed). The late-signed representation is deemed timely, effective from the year of the first loan, as long as a copy is attached to the relevant returns. The ruling is narrow: it decides only the timeliness of the representation, not whether the loans otherwise qualify or are below-market. It matters to participants in employer split-dollar plans who miss this easy-to-overlook paperwork deadline.

Ruling snapshot

• Question: Should the employee get an extension of time under § 301.9100-3 to make the late written representation required by Treas. Reg. § 1.7872-15(d)(2)?
• Outcome: approved (late representation deemed timely)
• Key authorities: Treas. Reg. § 1.7872-15(d)(1), (d)(2)(i), (d)(2)(ii); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC § 7872; IRC § 6501(a)

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202335006                                              Third Party Communication: None
 Release Date: 9/1/2023                                         Date of Communication: Not Applicable
 Index Number: 7872.05-00, 9100.00-00
                                                                Person To Contact:
 ----------------------------------------                       -------------------, ID No. -----------------
 ---------------------                                          Telephone Number:
 -------------------------------                                --------------------
                                                                Refer Reply To:
                                                                CC:FIP:B02
                                                                PLR-123099-22
                                                                Date:
                                                                May 23, 2023




Legend

Taxpayer                            =        ------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

Employer                            =        ----------------------------------

Company                             =        -----------------------------

Month 1                             =        ---------------------------

Month 2                             =        ---------------------

Month 3                             =        ----------------

Month 4                             =        ---------------------

Year                                =        -------

Date                                =        -----------------------




Dear ----------------------------------------:

      This ruling responds to a letter dated November 21, 2022, and subsequent
correspondence, submitted on behalf of Taxpayer. Taxpayer requests an extension of
time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to make a written representation under section 1.7872-15(d)(2) of the
PLR-123099-22                               2

Income Tax Regulations to elect to treat otherwise noncontingent payments on split-
dollar loans that are nonrecourse to the borrower as noncontingent.

                                         FACTS

       Taxpayer is an employee of Employer, a non-profit healthcare corporation that is
a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code (the
“Code”).

       In Year, Employer met with a consulting team from Company to consult on
matters relating to employee recognition and retention. Company recommended and
assisted with implementing a split-dollar life insurance plan (“SDP”) for key employees
of Employer. Neither Employer nor Taxpayer had prior experience with or knowledge of
SDPs.

       Employer contracted Company to serve as the SDP third-party administrator in
Month 1. Company was responsible for administering, implementing, and providing
ongoing guidance related to the SDP and the loans thereunder. These responsibilities
included set-up of the SDP, document preparation, and advising on document
execution. Taxpayer represents that both Employer and Taxpayer reasonably relied on
Company’s expertise regarding the SDP including all information, representations,
conclusions, and assistance, and that Company was aware of this reliance.

       Company intended for the SDP to be subject to the regulations under section
1.7872-15 (“Split-Dollar Regulations”) and designed the plan to utilize nonrecourse
premium loans to the employee participants secured by life insurance policies owned by
each employee (the “SDP Loans”). Taxpayer is an employee participant in the SDP
and in Year, Taxpayer received Taxpayer’s first SDP Loan. Taxpayer represents that
each of Taxpayer’s SDP Loans has stated interest equal to the applicable federal rate
and is not a “below-market split-dollar loan” under the Split-Dollar Regulations.
Company projected that the proceeds of the insurance policies securing each SDP
Loan are sufficient to pay all interest and principal due on that SDP Loan. Taxpayer
also represents that a reasonable person would expect that all payments under each of
Taxpayer’s SDP Loans will be made. The due date for making Taxpayer’s written
representation was Date.

        In Month 2, Company advised Employer that the parties to a SDP Loan were
required to make a written representation pursuant to section 1.7872-15(d)(2)(i) and (ii)
and file a copy of the representation with their tax returns for the years SDP Loans were
made to avoid having the payments treated as contingent payments for purposes of the
Split-Dollar Regulations. Taxpayer represents that they were informed of this
requirement by Employer. However, in the process of providing the initial SDP
execution documents, Company and Employer inadvertently failed to provide Taxpayer
with the written representation for execution.
PLR-123099-22                                      3

       In Month 3, Company provided executed documents under the SDP to Employer
counsel for review. During the review, it was discovered that Company had
inadvertently failed to provide Taxpayer and Employer with the written representation
necessary to make the section 1.7872-15(d)(2) election for Taxpayer’s SDP Loans. The
written representation was subsequently prepared by Employer counsel and executed
by both Taxpayer and Employer in Month 4.

      Taxpayer represents that Taxpayer has been accounting for the SDP Loans as
though the written representation was timely made.1

       Taxpayer makes the following additional representations:

       1. Granting the relief will not result in Taxpayer having a lower tax liability in the
          aggregate for all years to which the regulatory election applies than Taxpayer
          would have had if the election had been timely made (taking into account the
          time value of money).

       2. Taxpayer is not seeking to alter a return position for which an accuracy
          related penalty has been or could have been imposed under section 6662 at
          the time Taxpayer requested relief and the new position requires or permits a
          regulatory election for which relief is requested.

       3. Being fully informed of the required regulatory election and related tax
          consequences, the Taxpayer did not choose to not make the election.

       4. Taxpayer is not using hindsight in requesting relief. No facts have changed
          between the time the election should have been made and the time this
          request for relief was filed that would make the election advantageous to
          Taxpayer.

       5. The request for relief was filed before the failure to make the regulatory
          election was discovered by the Service.

       6. Although the period of limitations on assessment under section 6501(a) of the
          Code has expired for the taxable year at issue, an affidavit from an
          independent auditor certifying that the interests of the Government are not
          prejudiced under the standards of section 301.9100-3(c)(1)(i) by a ruling
          granting relief has been provided.

      Affidavits on behalf of Taxpayer have been provided as required by section
301.9100-3(e).




1 Employer has also requested relief under sections 301.9100-1 and 301.9100-3.
PLR-123099-22                                  4

                                   LAW AND ANALYSIS

       Section 1.7872-15(d)(1) provides that, except as provided in section 1.7872-
15(d)(2), if a payment on a split-dollar loan is nonrecourse to the borrower, the payment
is a contingent payment for purposes of section 1.7872-15.

        Section 1.7872-15(d)(2)(i) provides that an otherwise noncontingent payment on
a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under
section 1.7872-15 if the parties to the split-dollar life insurance arrangement represent in
writing that a reasonable person would expect that all payments under the loan will be
made. Section 1.7872-15(d)(2)(ii) describes the time and manner requirements for
providing the written representation required by section 1.7872-15(d)(2)(i). Section
1.7872-15(d)(2)(ii) provides, in part, that the written representation must be signed by
both the borrower and lender not later than the last day (including extensions) for filing
the Federal income tax return of the borrower or lender, whichever is earlier, for the
taxable year in which the lender makes the first split-dollar loan under the split-dollar life
insurance arrangement. This representation must include the names, addresses, and
taxpayer identification numbers of the borrower, lender, and any indirect participants.
Unless otherwise stated therein, this representation applies to all subsequent split-dollar
loans made pursuant to the split-dollar life insurance arrangement. Each party should
retain an original of the representation as part of its books and records and should
attach a copy of the representation to its Federal income tax return for any taxable year
in which the lender makes a loan to which the representation applies.

        Section 301.9100-1(b) defines “election” to include an application for relief in
respect of tax; a request to adopt, change, or retain an accounting method or
accounting period. The term does not include an application for an extension of time for
filing a return under section 6081. ”Regulatory election” is defined as an election whose
due date is prescribed by regulations or by a revenue ruling, a revenue procedure, a
notice, or an announcement published in the Internal Revenue Bulletin.

        Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time to make a regulatory election, or a statutory election (but
no more than 6 months except in the case of a taxpayer who is abroad), under all
subtitles of the Code except subtitles E, G, H, and I.

        Section 301.9100-3(a) through (c)(1) sets forth rules that the Service generally
will use to determine whether, under the particular facts and circumstances of each
situation, the Commissioner will grant an extension of time for regulatory elections that
do not meet the requirements of section 301.9100-2. Section 301.9100-3(a) provides
that requests for relief subject to section 301.9100-3 will be granted when the taxpayer
provides the evidence (including affidavits described in section 301.9100-3(e)) to
establish to the satisfaction of the Commissioner that the taxpayer acted reasonably
and in good faith, and the grant of relief will not prejudice the interests of the
Government.
PLR-123099-22                                 5


        Section 301.9100-3(b) provides that a taxpayer generally is deemed to have
acted reasonably and in good faith if the taxpayer (i) requests relief under section
301.9100-3 before the failure to make the regulatory election is discovered by the
Service; (ii) failed to make the election because of intervening events beyond the
taxpayer’s control; (iii) failed to make the election because, after exercising reasonable
diligence (taking into account the taxpayer’s experience and the complexity of the return
or issue), the taxpayer was unaware of the necessity for the election; (iv) reasonably
relied on the written advice of the Service; or (v) reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election. A taxpayer
will be deemed to have not acted reasonably and in good faith, however, if the taxpayer
(i) seeks to alter a return position for which an accuracy-related penalty has been or
could be imposed under section 6662 at the time the taxpayer requests relief and the
new position requires or permits a regulatory election for which relief is requested; (ii)
was informed in all material respects of the required election and related tax
consequences, but chose not to file the election; or (iii) uses hindsight in requesting
relief.

       Section 301.9100-3(c)(1) provides that a reasonable extension of time to make a
regulatory election will be granted only when the interests of the Government will not be
prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the
interests of the Government are prejudiced if granting relief would result in the taxpayer
having a lower tax liability in the aggregate for all taxable years affected by the election
than the taxpayer would have had if the election had been timely made (taking into
account the time value of money). Similarly, if the tax consequences of more than one
taxpayer are affected by the election, the Government’s interests are prejudiced if
extending the time for making the election may result in the affected taxpayers, in the
aggregate, having a lower tax liability than if the election had been timely made.
Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made or
any taxable years that would have been affected by the election had it been timely
made are closed by the period of limitations on assessment under section 6501(a)
before the taxpayer’s receipt of a ruling granting relief under section 301.9100-3. The
Service may condition a grant of relief on the taxpayer providing the Service with a
statement from an independent auditor (other than an auditor providing an affidavit
pursuant to section 301.9100-3(e)) certifying that the interests of the Government are
not prejudiced under the standards set forth in section 301.9100-3(c)(1)(i).


                                      CONCLUSION

      Based on the information submitted and representations made, we conclude that
Taxpayer has satisfied the requirements for granting a reasonable extension of time to
make the written representation under section 1.7872-15(d)(2). Accordingly, the fully
PLR-123099-22                                  6

executed written representation made in Month 4 will be deemed to have been timely
made. Provided that a copy of the fully executed written representation is attached to
Taxpayer’s Federal income tax return for the taxable year in which this letter is received,
the written representation will be deemed effective beginning in Year. In accordance
with section 1.7872-15(d)(2)(ii), a copy of the written representation should be attached
to Taxpayer’s tax return for any subsequent taxable year in which Employer makes a
SDP Loan to Taxpayer to which the written representation applies.

       This ruling is limited to the timeliness of making a written representation under
section 1.7872-15(d)(2). This ruling’s application is limited to the facts, representations,
and Code and regulation sections cited herein. Except as provided herein, no opinion is
expressed or implied concerning the tax consequences of any aspect of any transaction
or item discussed or referenced in this letter. Specifically, no opinion is expressed with
regard to whether Taxpayer satisfied the other requirements under section 1.7872-
15(d)(2)(i) and (ii), the loan treatment requirements under section 1.7872-15(a)(2), or
whether payments under each SDP Loan are otherwise noncontingent payments for
purposes of section 1.7872-15. No opinion is expressed with regard to whether the
SDP Loans are below-market loans for purposes of section 7872 of the Code and
section 1.7872-15 of the Regulations.

       No opinion is expressed with regard to whether the tax liability of Taxpayer is not
lower in the aggregate for all years to which the election applies than such tax liability
would have been if the election had been timely made (taking into account the time
value of money). Upon audit of the Federal income tax returns involved, the director's
office will determine such tax liability for the years involved. If the director's office
determines that such tax liability is lower, that office will determine the Federal income
tax effect.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

                                           Sincerely,


                                           Andrea M. Hoffenson
                                           Andrea M. Hoffenson
                                           Branch Chief, Branch 2
                                           Office of the Associate Chief Counsel
                                           (Financial Institutions and Products)
PLR-123099-22                                 7


Cc:

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