64 T.C. 282">*282 OPINION

Respondent determined deficiencies in petitioners' income taxes as follows: 64 T.C. 282">*283

1975 U.S. Tax Ct. LEXIS 140">*141 The sole issue presented is whether petitioners received an economic benefit from the maintenance of certain whole life insurance policies by their family-owned corporation under a so-called "split-dollar" arrangement which is taxable under section 61. ¹

All of the facts have been stipulated and are found accordingly.

Petitioners Arthur and Leona Genshaft, husband and wife, and David and Anne Genshaft, husband and wife, all resided in Canton, Ohio, at the time of the filing of their respective petitions with this Court. For the calendar years 1968 and 1969 each couple timely filed joint Federal income tax returns with the Internal Revenue Service Center at Cincinnati, Ohio. Each couple employed the cash receipts and disbursements method of accounting.

At all times pertinent to the resolution of this case, David Genshaft and Arthur Genshaft (hereafter referred to as either petitioners or David and Arthur) 1975 U.S. Tax Ct. LEXIS 140">*142 were the chief executive officers of Superior's Brand Meats, Inc., formerly known as the Superior Provision Co., an Ohio corporation (hereafter referred to as Superior). Petitioners and their families owned all of the common stock of Superior.

During the years 1957 through 1959 Superior purchased the following life insurance policies from the New York Life Insurance Co. (hereafter referred to as NYLIC):

64 T.C. 282">*284 The five policies contained identical benefits, provisions, conditions, and endorsements. Superior also obtained 1-year-term riders on each policy. These 1-year-term riders provided for nonparticipating term insurance for a period of 1 year beginning on the anniversary date of each policy in an amount equal to the tabular cash value of the policy as of the following anniversary date. Each policy also provided for the application of dividend deposits to cover the term insurance premiums.

In early November, prior to November 13, 1964, Superior executed documents (e.g., "Change of Beneficiary and Ownership," "Settlement Agreement") providing for a modified "split-dollar" arrangement. ²1975 U.S. Tax Ct. LEXIS 140">*144 The specific terms of one of these documents (representative of the documents attached to each 64 T.C. 282">*285 policy) are set forth in the margin. ³

1975 U.S. Tax Ct. LEXIS 140">*145 Superior borrowed extensively on the cash values of each of the policies. For the year 1966 the following chart (derived from tables prepared by NYLIC) ⁴ indicates relevant data with respect to each policy: 64 T.C. 282">*286

During 1966, Superior executed documents terminating the five policies and concurrently causing new modified 5-year term/whole life policies to be issued. ⁵ The specific terms of one of these documents (representative of the documents1975 U.S. Tax Ct. LEXIS 140">*147 attached to each policy) are set forth in the margin. ⁶ These new policies were 64 T.C. 282">*287 subsequently converted into whole life policies, effective from the initial policy date. Relevant data with respect to each new policy is set forth in the following chart:

1975 U.S. Tax Ct. LEXIS 140">*149 When each of the old policies was terminated the cash value was applied against Superior's outstanding indebtedness to NYLIC thereby canceling in full such indebtedness. The balance of the cash value of each old policy was then applied as part payment on the first annual premium due on each related new policy.

Except for the higher premiums (due to the fact that the premiums were determined according to the insured's age as of the new policy date of each policy rather than with respect to the original policy date of each old policy), the provisions of each new policy were identical to the provisions of each related old policy. Documents relating to the "split-dollar" arrangement attached to the old policies were attached to the new policies. When Superior obtained the new policies, NYLIC did not subject petitioners to new medical examinations. Nor did NYLIC reactivate the 1-year contestable and suicide periods. However, NYLIC did pay policy commissions on the issuance of the new policies.

64 T.C. 282">*288 For the years 1967, 1968, and 1969, the following chart (also derived from tables prepared by NYLIC) ⁷ indicates further relevant data with respect to each new policy:

1975 U.S. Tax Ct. LEXIS 140">*152 Petitioners were not required to, and did not, pay any portion of the premiums on any of the policies. They also did not report any income with respect to the benefit conferred on them by the policies.

Respondent determined that Arthur received additional income during 1968 and 1969 in the respective amounts of $ 17,525.21 and $ 18,861.10 resulting from the economic benefit conferred by the two policies insuring his life. Respondent also determined that David received additional income during 1968 and 1969 in the respective amounts of $ 10,293.46 and $ 11,094.54 resulting from the economic benefit conferred by the three policies insuring his life. Respondent's "Explanation of Adjustment" for Arthur is set forth in the margin. ⁸ Except for the amounts, the explanation attached to David's notice of deficiency is substantially the same.

1975 U.S. Tax Ct. LEXIS 140">*153 64 T.C. 282">*290 Petitioners submit that respondent erred in increasing their respective taxable incomes during the years in issue. Their argument is two-pronged: First, they contend that they escape taxation by reason of Rev. Rul. 55-713, 1955-2 C.B. 23, Rev. Rul. 64-328, 1964-2 C.B. 11, not being applicable because its revocation of Rev. Rul. 55-713 is effective only "as to policies purchased under 'split-dollar' arrangements or utilized to establish such arrangements after November 13, 1964." It is their position that the policies in effect during the years in issue were not "purchased" after November 13, 1964, but were issued in "exchange" for the related old policies which contained identical provisions, including provisions providing for "split-dollar" arrangements which were in effect prior to November 14, 1964, and that, therefore, Rev. Rul. 55-713 is still applicable as to the "exchanged" policies. Secondly, they contend that even if they fall within Rev. Rul. 64-328,1975 U.S. Tax Ct. LEXIS 140">*154 that ruling should not be followed because it is contra to our decision in J. Simpson Dean, 35 T.C. 1083">35 T.C. 1083 (1961). For reasons to be stated hereafter, it is our judgment that each petitioner's gross income should be increased to reflect the benefit conferred on them by the maintenance of the policies by Superior.

Basically, we are called upon to determine the tax effect on petitioners resulting from the maintenance of five so-called "split-dollar" insurance policies by their employer. In answering this question we need not initially concern ourselves with either Rev. Rul. 55-713 or Rev. Rul. 64-328.

It is well settled that gross income (as defined in section 61) includes the value of any economic benefit conferred on an employee by his employer. See, e.g., Commissioner v. Smith, 324 U.S. 177">324 U.S. 177, 324 U.S. 177">181 (1945). The regulations under section 61 specifically provide that life insurance premiums paid by an employer on the life of his employee are includable in the employee's gross income where the proceeds of such insurance1975 U.S. Tax Ct. LEXIS 140">*155 are payable to a beneficiary named by the employee. Sec. 1.61-2(d)(2)(ii)(a), Income Tax Regs. It follows, therefore, that each petitioner received a present economic benefit from the payment of the premiums by Superior to the extent of the insurance protection provided to each petitioner's beneficiary during the years in issue. See Paul L. Frost, 52 T.C. 89">52 T.C. 89, 52 T.C. 89">96 (1969). Compare William C. Wright, 62 T.C. 377">62 T.C. 377 (1974). Contrary to petitioners' contention Rev. Rul. 55-713 does not provide for nontaxability in 64 T.C. 282">*291 the instant situation. This ruling, in substance, only provides that the portion of insurance premiums paid by an employer in a typical "split-dollar" arrangement do not constitute additional income to the employee to the extent of the increase in the cash surrender value. In the case at bar we are not concerned, as such, with the investment element of the policies; it is the pure insurance element of the policies and its economic benefit to petitioners that is at issue. Similarly, 35 T.C. 1083">J. Simpson Dean, supra,1975 U.S. Tax Ct. LEXIS 140">*156 is not in point. ⁹ We are not dealing with employer-employee interest-free loans. The loan analogy in Rev. Rul. 55-713 relates only to the portion of the premiums paid relating to the increase in the cash surrender value; the analogy does not relate to the insurance element of the policy.

Having determined that petitioners received a present economic benefit during each of the years in issue, the only question left is the method of valuing that benefit. It is this question that brings into consideration Rev. Ruls. 55-713 and 64-328.

We note first of all that neither Rev. Rul. 64-328 nor Rev. Rul. 55-7131975 U.S. Tax Ct. LEXIS 140">*157 is directly in point. Each ruling presumes that the employer will pay only the portion of the premium equal to the increase in cash surrender value of the policy with the employee paying the balance, if any, of the premiums due. In the instant situation petitioners were not required to pay any portion of the premiums. However, we believe the instant situation still falls within the ambit of the two rulings. We want to emphasize, though, that revenue rulings are advisory only; they do not carry the force of law nor bind this Court in any manner. Ronald C. Packard, 63 T.C. 621">63 T.C. 621, 63 T.C. 621">637 (1975); G. Douglas Burck, 63 T.C. 556">63 T.C. 556, 63 T.C. 556">561-562 (1975); Andrew A. Sandor, 62 T.C. 469">62 T.C. 469, 62 T.C. 469">481-482 (1974). ¹⁰

1975 U.S. Tax Ct. LEXIS 140">*158 64 T.C. 282">*292 Bearing the above in mind, we turn to the two rulings. Respondent argues that Rev. Rul. 64-328 should be employed to determine the value of the economic benefit conferred. Petitioners, on the other hand, submit that Rev. Rul. 64-328's grandfather clause prevents its applicability; and that, therefore, respondent must be bound by his position as set forth in Rev. Rul. 55-713. ¹¹ We glean from Rev. Rul. 55-713 that respondent would determine the value of the annual economic benefit conferred by subtracting the increase in the cash surrender value from the total premium due (including the 1-year term insurance premiums). ¹² The basis of this method rests with Rev. Rul. 55-713's analysis that the substance of a "split-dollar" arrangement is essentially the same as if the employer had made annual interest-free loans to the employee equal to the increase in the cash surrender value. 1975 U.S. Tax Ct. LEXIS 140">*159

In Rev. Rul. 64-328 respondent revoked Rev. Rul. 55-713, stating that Rev. Rul. 55-713 incorrectly analyzed the situation. The ruling went on to provide that the value of the economic benefit conferred is to be determined by computing the annual cost of pure term insurance for the amount payable to the employee's beneficiary less any amounts of the total premium paid by the employee. However, as we have noted previously, Rev. Rul. 64-3281975 U.S. Tax Ct. LEXIS 140">*160 provides that Rev. Rul. 55-713 will still be applicable to "split-dollar" policies in effect prior to November 14, 1964.

In our judgment, the policies in effect during the years in issue were in substance mere continuations of the related old policies and thus not "purchased" after November 13, 1964. Therefore, they fall within the purview of Rev. Rul. 55-713 and not Rev. Rul. 64-328. These were not the independent purchase of new policies but were clearly dependent upon the old policies. Each new policy contained substantially the same provisions as the old. The face amounts were the same and the "split-dollar" provisions of the old policies were attached to the new. We also note that petitioners were not subjected to new medical examinations and that the 1-year contestable and suicide periods were not 64 T.C. 282">*293 reactivated. The only material difference, as far as we can determine, is the higher premiums. The premiums were determined with respect to each insured's age as of the date of each 1975 U.S. Tax Ct. LEXIS 140">*161 new policy and not as of the date of each original policy. We do not find this to be a significant difference in determining whether or not the policies were purchased or utilized to establish "split-dollar" arrangements after November 13, 1964.

Respondent also places much emphasis upon the numerical differences in the benefits payable to Superior and to petitioners' beneficiaries. We do not find this to be a material difference. The split up of the death proceeds was to be determined in the identical manner. The total net death benefit, as noted in our findings, depended not only upon the face amount of each policy, but also upon the amount of any 1-year term insurance and upon any indebtedness. The numerical amounts of the net benefits were changing each year. However, the method of computation remained the same. Had there been a significant and material change in any of the policies, then it would appear clear that the policies would fall within the ambit of Rev. Rul. 64-328 for purposes of determining the value of the economic benefit conferred, but such was not the case in this instance. ¹³

1975 U.S. Tax Ct. LEXIS 140">*162 Consequently, it is our decision that the value of the economic benefit conferred shall be determined in accordance with our interpretation of Rev. Rul. 55-713. Petitioners have not, as such, questioned the method of valuation. Their arguments were directed toward complete immunity from taxation. We need not, and do not, consider the validity of Rev. Rul. 64-328.

Decisions will be entered under Rule 155.