AFS Provides Split Dollar Alternatives to Master System Clients

Split Dollar Cases illustrated using the Master System

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Case 1

Assumptions:

• The interest rate being charged on the corporation's loan to the executive is equal to the Applicable Federal Rate (AFR).
• The executive will pay the interest on the loan to the corporation each year in cash.
  

Case 2

Assumptions:

• The interest rate being charged on the corporation's loan to the executive is LESS THAN the AFR.
• The executive will pay the interest on the loan and the tax on the below market loan imputed income each year in cash.

Case 3

Assumptions:

• The interest rate being charged on the corporation's loan to the executive is equal to the AFR.
  
  
• The corporation will 'gross-up' a bonus for the executive, such that the amount of the bonus after taxes will exactly equal the amount of interest due back to the corporation.
  

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