Life Insurance Question
 

I found this on complianceonline.com and was just wondering...

Can a Corporation pay life insurance for an officer of the corporation as a legitimate expense?

I am not incorporated in my business and I cannot legally deduct my life insurance premiums, but I can for my employees.

But as noted I am not incorporated.

I think corps can as I always feel that is an unfair rule.

Tom W

Yeah -- I have to say, it is an interesting question. If a corporation has a certain prospect to bring on board and one of the "extras" that they request is that their life insurance premium is paid by the corp. Would that not be considered an expense?

GUIDEBOOK, 2007 USMTG, 909. Life Insurance Premiums


Life Insurance Premiums

Premiums paid by an employer for insurance on the life of an officer or employee are deductible only if it can be shown that: (1) premium payments are in the nature of additional compensation; (2) total compensation, including premiums, is not unreasonable; and (3) the employer is not directly or indirectly a beneficiary under the policy. [2007FED¶8522.386, 2007FED¶14,002, 2007FED ¶14,008.03, 2007FED¶14,008.12 BUSEXP: 18,154.05 ]. However, no deduction is allowed an employer for premiums paid under a split dollar arrangement (see ¶721). [2007FED¶5907.052, 2007FED¶5508.24 COMPEN: 48,154.05 ].

Premiums on group-term life insurance covering the lives of employees are deductible by the employer if the employer is not a direct or indirect beneficiary. [2007FED ¶6360, 2007FED¶14,003 COMPEN: 48,100 ]. The payment of such premiums generally represents income to the employee to the extent that the coverage provided exceeds $50,000 (see ¶721).

Generally, no deduction is allowed for interest paid or accrued on a debt incurred or continued to purchase or carry any single premium life insurance, endowment or annuity contract. If substantially all the premiums on a life insurance or endowment contract are paid within four years from date of purchase, or if an amount is deposited with the insurer for payment of a substantial number of future premiums on the contract, it is regarded as a single premium contract ( Code Sec. 264(a)(2) and (c)). [2007FED¶14,002, 2007FED¶14,008.021 INDIV: 48,556 ].

Interest on a debt incurred to purchase or continue a life insurance, endowment, or annuity contract pursuant to a plan of purchase contemplating the systematic borrowing of part or all of the increases in cash value is not deductible ( Code Sec. 264(a)(3)). [2007FED¶14,002, 2007FED¶14,008.021 INDIV: 48,556 ]. However, Code Sec. 264(d) allows an interest deduction in limited situations. [2007FED ¶14,002, 2007FED¶14,008.023 INDIV: 48,556 ]. Special rules may permit the deduction of interest incurred for key person policies owned by corporations ( Code Sec. 264(e)). [2007FED ¶14,002, 2007FED¶14,008.023 COMPEN: 48,062 ].

Jim,

Based on that first paragraph... is it saying it *is* deductible for the corp. But the OFFICER is going to pay income tax on it then since it is additional compensation?

:confused:

Silly and unfair rules like these are just more reasons to abolish the federal income tax.

See:
www.fairtax.org

In a word, yes. This Rev. Ruling says the same thing and also discusses the




REV-RUL, SECTION 162.--TRADE OR BUSINESS EXPENSES, Rev. Rul. 58-90, 1958-1 CB 88, (Jan. 01, 1958)
Rev. Rul. 58-90, 1958-1 CB 88


SECTION 162.--TRADE OR BUSINESS EXPENSES
(Also Sections 61, 104, 106; 26 CFR 1.61-2, 1.104-1, 1.106-1.)
(Also Part II, Sections 22(a), 22(b), 23(a); Regulations 118, Sections 39.22(a)-3, 39.23(a)-6.)
Treatment for Federal income tax purposes of amounts paid as premiums on, and amounts received as benefits under, individual insurance policies covering sickness and disability protection (1) where the premiums are paid by a corporate employer for the benefit of a key employee and (2) where the premiums are paid by an individual sole proprietor of an unincorporated business for his own benefit.

[Text]

Advice has been requested as to the treatment for Federal income tax purposes of amounts paid as premiums on, and amounts received as benefits under, the two insurance policies referred to in the following examples. Neither policy is part of a group insurance plan.

Example (1). A corporation purchases an individual insurance policy for a key employee. The only benefit provided by the policy is income replacement payments in the event the employee becomes sick or disabled. The employee, who is not a stockholder in the corporation, has all the rights of ownership in the policy, and no part of the benefits under the policy are payable to the corporation. The corporate employer pays the premiums on the policy only so long as the employee remains in its employ.

Example (2). An individual sole proprietor of an unincorporated business purchases for this own benefit the same type of insurance coverage described in example 1 above.

Since the facts presented in example (1) indicate that the taxpayer corporation is not directly or indirectly a beneficiary under the policy, it is concluded that the amount it pays as premiums on the insurance policy there involved may be deducted by the corporation as an ordinary and necessary business expense under section 162(a) of the Internal Revenue Code of 1954, or section 23(a)(1) of the 1939 Code, if it can be shown (1) that the premiums were paid in consideration of personal services actually rendered by the employee, and (2) that the total amount paid the employee, including the premiums, was not unreasonable compensation for his services. See G. C. M. 8432, C. B. IX-2, 114 (1930), and cases cited therein; Rev. Rul. 210, C. B. 1953-2, 114; Arthur R. Womrath, Inc. v. Commissioner, 22 B. T. A. 335; and C. F. Smith Co. v. Commissioner, T. C. Memo 1954-86.

The amount of the premiums paid by the corporation should be excluded from the gross income of the employee for taxable years beginning after December 31, 1953, and ending after August 16, 1954, under the provisions of section 106 of the 1954 Code. The amount of the premiums paid by the corporation in prior taxable years should be included in the gross income of the employee for the taxable year in which paid under the provisions of section 39.22(a)-3 of Regulations 118.

In example (2), above, the insurance premiums paid by the sole proprietor on insurance in behalf of himself are not ordinary and necessary business expenses. Instead, such amounts are personal expenses which are nondeductible under section 262 of the 1954 Code and section 24(a)(1) of the 1939 Code.

Income payments received under the above policies constitute amounts received through accident or health insurance within the meaning of sections 104(a)(3) and 105(a) of the 1954 Code and section 22(b)(5) of the 1939 Code.

It is concluded, therefore, that (1) the income payments received during taxable years to which the 1939 Code is applicable under either of the above policies may be excluded from the gross income of the insured under section 22(b)(5) of the 1939 Code; (2) the income payments received during taxable years to which

Amen, bruh.

IIRC, if the officer/employee pays taxes on the benefit (in this case, the life insurance premium) the death benefit is not taxed. If he does not pay taxes on the premium, the death benefit (or some part of it) may be taxed. Not sure of all the details, those more versed in the accounting aspect might comment.

And exactly how do you think the government will fund itself?

(Can we try and keep it on topic... at least until more information comes to light?) :D

http://i3.photobucket.com/albums/y74...-has-a-hat.jpg

now do you expect that to happen here?

I guy can hope...