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GIFTS OF AND USING LIFE INSURANCEto the charity to assist in making premium payments, or expressly requiring thecharity to use the funds for premium payments, “both parties understand thatthis will occur.”The structure of charitable split-dollar insurance transactions varied. Insome cases, a member of the taxpayer’s family, a family limited partnership, oranother type of intermediary related to the taxpayer was used as an intermediaryrather than an irrevocable life insurance trust.(b) Charitable Deduction Denial Rules and PenaltiesThe federal tax law denies an income tax charitable contribution deduction for,and imposes excise tax penalties on, transfer associated with the use of charitablesplit-dollar insurance plans. 48General Rules. There is no federal charitable contribution deduction for a transferto or for the use of a charitable organization, if in connection with the transfer:• the organization directly or indirectly pays, or has previously paid, anypremium on any personal benefit contract with respect to the transferor, or• there is an understanding or expectation that any person will directly orindirectly pay any premium on this type of a contract with respect to thetransferor. 49It is intended that an organization be considered as indirectly paying premiumsif, for example, another person pays premiums on its behalf.A personal benefit contract with respect to a transferor is any life insurance,annuity, or endowment contract, if any direct or indirect beneficiary under thecontract is the transferor, any member of the transferor’s family, or any otherperson (other than a charity) designated by the transferor. 50 For example, thistype of beneficiary includes a trust having a direct or indirect beneficiary who isthe transferor or any member of the transferor’s family, and includes an entitythat is controlled by the transferor or any member of the transferor’s family. It isintended that a beneficiary under the contract include any beneficiary under anyside agreement relating to the contract.If a person contributes a life insurance contract to a charity and designatesone or more charities as the sole beneficiaries under the contract, generally it isnot intended that this deduction denial rule apply. If, however, there is an outstandingloan under the contract upon the transfer of the contract, then the personis considered a beneficiary. The fact that a contract also has other direct orindirect beneficiaries (persons who are not the transferor or a family member, ordesignated by the transferor) does not prevent it from being a personal benefitcontract. This is not intended to adversely affect situations in which an organizationpays premiums under a legitimate fringe benefit plan for employees. 5148 IRC § 170(f)(10). A summary of legislative proposals and various items of legislation leading to this body oflaw appeared in § 17.6(b) of the second edition of this text.49 IRC § 170(f)(10)(A).50 IRC § 170(f)(10)(B).51 See, e.g., Priv. Ltr. Rul. 200020060. See § 17.6(c), text accompanied by note 68. 540