In reporting on Forethought’s cut in growth payments last month, the Funeral Service Insider made a curious statement about the taxability. Referencing one of Forethought’s products, the article stated that a funeral home would have received the product’s growth tax free, and now would have to recognize the bonus as income. The article suggests that Forethought’s executive replied by advising that the taxability of the bonus would depend how the funeral home handles it.

Excuse me, but how are insurance proceeds or bonuses not taxable to the funeral home?

If a preneed insurance carrier is suggesting that policy proceeds are not taxable to the funeral home that accepts policy proceeds as consideration for performing a preneed contract, how does that company explain the transfer-for-value rule?