An employee normally will have no cost basis if a plan is noncontributory and does not provide life insurance protection.
If life insurance protection has been provided under a cash value policy, the employee usually will have some cost basis, namely, the aggregate one year term costs that have been taxed to the employee, even though the plan is noncontributory.1
A self-employed person who is an owner-employee cannot include in his or her cost basis the annual one year costs of life insurance protection under Table 2001 or previously under P.S. 58 ( Q 3948), even though these costs were not deductible.2 No self-employed person, whether or not an owner-employee, can include in cost basis the cost of any health insurance features under the plan.