Reportable policy exception refers to a circumstance under Internal Revenue Code Section 101(j) in which employer-owned life insurance (EOLI) death benefits can remain income-tax free, despite general rules that would otherwise tax them. Section 101(j) requires employers to meet notice, consent, and employee-status tests for policies on employees' lives; if these are not satisfied, death benefits above premiums can become taxable unless an exception applies. Reportable policy exceptions include coverage on certain highly compensated individuals, policies used in qualified plans or Section 79 arrangements, and contracts issued before the effective date of the rules. Proper documentation is essential to demonstrate that an exception applies and to preserve intended tax treatment.

In advanced planning and corporate-owned life insurance administration, advisors and tax professionals review Section 101(j) rules and reportable policy exception categories before placing or auditing EOLI. Employers may file Form 8925 annually to report coverage and confirm compliance. Advisors help ensure that notice and consent procedures are followed, that insureds fall within qualifying employee categories, and that records are retained. When reviewing older blocks of EOLI, CPAs and attorneys check whether policies are grandfathered or meet exceptions, and may recommend corrective steps or restructuring if they do not. Understanding reportable policy exceptions helps corporate clients avoid unexpected taxation of death benefits intended to fund buy-sell plans, key person coverage, or benefit programs.