What are your feelings about section 79 - i have one group of advisors who feel that it can be taken advantage of in order to purchase cash value life insurance and be able to deduct some of it... and a group of accountants who are advising against it as a risky move under IRS scrutiny and better to just purchase cash value life insurance on my own w/ lower premiums?

I have done a decent amount of reseach on this topic and while I can't provide you with any supporting reasons as to exactly why the strategy will not work, however, I can tell you that I would not recommend it to any of my clients - for the very reason that you mentioned to "take advantage of".

In fact, a well-know estate planning attorney that I questioned on this specific topic replied "As you probably know, over the course of history there have been many attempts to make permanent life insurance deductible (RLR, VEBAs, etc.) - all with no success. I often quip that, if as much effort had been put into finding a cure for cancer as has been put in to making permanent life insurance tax deductible, cancer would be eradicated. Thus, I'm skeptical that the proposed plan (section 79) will work. The IRS is not going to give you a tax deduction going in and income tax free going out".

Your post has prompted me to make a few more calls. I will let you know what I find out but another estate planning (tax)attorney I spoke to this morning was very skeptical about measuring the cost of a cash value policy through a section of the code that was meant for group term life insurance.

Also note, that this strategy calls for you to be a "C" Corporation, which for many reasons, is not suggested for physicians.

If you would like me to discuss this with you in more detail or provide you with specific responses as I receive them, send me an email and I will be happy to forward them to you.

I can be reached at (516) 677-6211 or by email to lkeller@physicianfinancialservices.com

Zip Code: 11797

the argument being made is that while the contributions to the section 79 plan are tax-deductible from a corporate point of view - i will pay personal income tax on a portion of the contributions that were made... it appears that i won't be taxed on the whole amount, though. The amount that i save on taxes, basically ends up being spent in premiums.

the argument being made is that 1) this is great asset protection 2) that it is great estate planning 3) that it provides a source of income in the future since i will be able to draw loans with minimal to no interest tax-free in the future to supplement retirement income...

your thoughts?
your time is MUCH appreciated!

I certainly understand all of the arguments being made. My issue is that I have not found anyone (other than the insurance agents selling this concept) to find it to be a good idea. I have several calls out and will let you know if I find out any additional information.

I am assuming the plan that you are being shown is with Pacific Life. Correct?

Are you currently a "C" corporation? Do you have any employees other than yourself?

Zip Code: 11797

yes - it is pacific life? how did you know? is that the only one marketing this?

i have no other employees --- i have an s-corp and a c-corp and would be using the c-corp for the sect 79...

what is the biggest down-side of doing this?

I most likely know the group that you have been speaking with as they have written several books and are great at marketing to physicians.

Other companies do sell this type of plan as well. However, most of the major carriers avoid these types of plans due to increased IRS scrutiny (and a history of these things not having worked as favorable as described over time).

Like I mentioned, I would not recommend this plan to any of my clients nor would I do it for myself. I have not found anyone, other than agents and brokers (that have a vested interest in selling or administering the plan), that have given it the "thumbs up".

Worst case scenerio, if the IRS does not view the plan as described or the regs change, the deduction would be disallowed and you would owe taxes at the highest personal rate plus state, city, interest and penalties.

If you would like to discuss things in more detail, feel free to call. I would be happy to provide you with more detail and background behind this plan.

Bottom line: It is geared toward the greed of the agent or broker and client that is willing to take a very aggressive position to reduce income taxes.

There are other options that may produce similar results with a lot less risk.

Zip Code: 11797

Curious-

Here is a link to an article called "The Truth Behind Section 79 Plans". It was written by a physician turned financial advisor. You will find it interesting to say the least.

http://healthcarewealthcare.com/wealthcare/2009/10/31/the-truth-behind-section-79-plans/

Zip Code: 11797