CCA 201350037: Larger dependent life insurance coverage needs a de minimis cost test

Plain-English summary

Chief Counsel Advice addresses employer-provided group-term life insurance for employees' dependents. Coverage with a face amount above $2,000 is not automatically treated as a de minimis fringe benefit under Notice 89-110. Whether it still qualifies depends on the excess, if any, of the insurance cost over the employee's after-tax payment. The cost is calculated under Treas. Reg. § 1.79-3(d)(2). If the benefit exceeds the applicable de minimis limits, the entire benefit is included in the employee's income.

Ruling snapshot

• Question: When is employer-provided dependent group-term life insurance a de minimis fringe benefit?
• Outcome: Advice given
• Key authorities: IRC § 132; Treas. Reg. §§ 1.79-3(d)(2), 1.132-6(d)(4); Notice 89-110

Full text (IRS public release)

ID: CCA_2013102511313696 Third Party Communication: None

UILC: 132.04-00 Date of Communication: Not Applicable

Number: 201350037
Release Date: 12/13/2013
From:
Sent: Friday, October 25, 2013 11:31:37 AM
To:
Cc:
Bcc:
Subject: RE: Life Insurance for Dependents

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I agree with your analysis. Because the face amount of the employer-provided dependent group-term life insurance exceeds $2,000, the insurance is NOT deemed to be a de minimis fringe benefit (see Notice 89-110). In determining whether dependent group-term life insurance with a face value exceeding $2,000 is de minimis or not, we only take into account the excess (if any) of the cost of the insurance over the amount paid for the insurance by the employee on an after-tax basis. As you conclude, the cost of the insurance is determined under section 1.79-3(d)(2) of the regulations. A cliff provision does apply in that, if an employer provides a benefit that exceeds either the value or the frequency limitations for de minimis fringe benefits, the entire benefit is included in the employee’s income, not just the portion that exceeds the de minimis limits (see Reg. Section 1.132-6(d)(4)). Hope this is helpful.

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