CCA 200923033: Player disability arrangement differed from cited insurance rulings

Plain-English summary

Chief Counsel advised how to distinguish two earlier private letter rulings from a case involving disability insurance for a ballplayer. In the earlier rulings, the released facts showed little connection between insurance proceeds paid to an employer and premiums the employer paid on separate policies benefiting employees. The rulings did not say that proceeds from the first policies funded the second policies, that the same people were insured, or that the policies depended on one another. In the current case, the taxpayer compared disability insurance proceeds with amounts paid to the disabled player and argued that the payments were deductible under section 162. The advice identifies a closer connection because the employment contract anticipated the insurance contract and allowed termination if the player did not cooperate in obtaining insurance.

Ruling snapshot

• Question: Could the taxpayer rely on two earlier insurance rulings to support a section 162 deduction for payments to a disabled ballplayer?
• Outcome: Advice given, the current contracts showed a closer connection than the earlier rulings described
• Key authorities: IRC § 162; PLR 7910064; PLR 8124026

Full text (IRS public release)

ID: CCA-213230-09 Number: 200923033
Release Date: 6/5/2009
Office: ----------------
UILC: 162.00-00

From: -------------
Sent: Friday, February 13, 2009 12:30 PM
To: --------------------
Cc:
Subject: Player disability ---------

Hi ---------

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As for distinguishing the PLRs from the --------------------case, we would distinguish PLR 7910064 and 8124026 by stating that the facts in the letters show minimal nexus between the amounts received by the employer under the insurance policies on which the employer is the beneficiary (1st policies) and the amounts paid out as a premium on the policy that has the employees as the beneficiaries (2nd policy). The people insured under the 1st policies may or may not be the same people as are insured under the 2nd policy. The letters do not indicate that the 1st policy was taken out to pay for the 2nd policy premiums. The letters do not indicate that the anticipated amounts to be received under the 1st policy were calculated to fund the premiums for the 2nd policy. There is no indication that the 2nd policy will be voided if the 1st policies do not pay off, or that the beneficiaries under 2nd policy have to do something to implement the 1st policies.

In --------------------, the taxpayer makes the argument that the amounts received by the employer under the disability policy are like the amounts received under the 1st policies in the PLRs and the amounts paid as compensation to the disabled ballplayer under his employment contract are like the amounts paid as premium payments by the employer in the PLRs, therefore these amounts should be deductible under section 162 just like in the PLRs. However, it seems that there are facts in the contracts that establish a closer nexus in the --------------------case. The employment contract anticipates the disability insurance contract and allows for termination of the employment contract if the player fails to cooperate in obtaining such insurance. The PLRs do not state that the beneficiaries under the second policies have to cooperate in the employer's application for insurance under the 1st policies. The PLRs do not tie the two together. -
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Please let me know if you should need anything else.

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