Tax Facts

133 / If a stockholder’s personal life insurance is used as collateral security for the corporation’s debt, are the premiums deductible?

If the insured stockholder pays the premiums, the stockholder is denied a deduction on the ground that the premium payments are not an ordinary and necessary expense of carrying on the stockholder’s business.1 If the corporation pays the premiums, they are nondeductible under IRC Section 264(a)(1) because the corporation is indirectly a beneficiary under the policy.2

1. Morison v. Commissioner, TC Memo 1960-243.

2. See Rev. Rul. 68-5, 1968-1 CB 99.

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