“Officer’s life insurance premiums” are not allowed as a deduction on a corporation’s tax returns. Why is this? Is this one of those unfair tax rules?
Well, when a corporation takes out a life insurance policy on one if its key employees — and the corporation is both the owner and beneficiary of the policy — the proceeds paid to the corporation upon the death of the employee are generally tax-exempt (I.R.C. §101). Because I.R.C. §101 serves to exclude life insurance proceeds from income, I.R.C. §264 prevents a second tax benefit by disallowing a deduction for any premiums paid on a policy on which the payor is the beneficiary. That way, the taxpayer doesn’t get a deduction for premiums AND tax-exempt proceeds when the policy is paid out.
The rules regarding COLI are complex. Did you know [Read more…] about COLI-The ABCs of Company-Owned Life Insurance