How does the settlement initiative apply to a self-employed individual?
A.10 Because amounts that are disallowed for a self-employed individual are shown on the individual’s income tax return, the settlement terms apply differently to a self-employed individual. The deductions are still disallowed for open years and thus result in an increase in taxable income to the self-employed individual in open years. The plan is terminated and the contracts distributed. In the case of contracts distributed to a self-employed individual, the amount included in income is the sum of the premiums paid for the contracts reduced by the amounts added to taxable income with respect to the contracts for the open years. Thus, in the year of distribution, no deduction is allowed with respect to the distribution of the contracts to the self-employed individual (or his or her spouse) but a deduction is allowed with respect to the sum of the premiums paid to other employees.
