determination that policies entered into on or after June 21, 1988, that fail the 7-pay test (aggregate premiums paid at any time during the first 7 years of the contract exceed the annual net level premium of a 7-pay policy multiplied by the number of years the policy has been in force) are considered by the Internal Revenue Service (IRS) to be modified endowment contracts (MECs). If the policy is determined to be a MEC, it may be subject to income taxes as well as penalty taxes. Any policy loans, dividends, or partial withdrawals of funds are treated by the IRS for income tax purposes on a last-in, first-out basis.
Dictionary of Insurance Terms for: Technical And Miscellaneous Revenue Act of 1988 (TAMRA): income taxation of cash value life insurance
Technical And Miscellaneous Revenue Act of 1988 (TAMRA): income taxation of cash value life insurance