Tax Facts

266 / If a stockholder purchases insurance on the life of another stockholder to fund obligations under a cross purchase plan, can the stockholder deduct the premiums paid on the policy?



No.

The premium payments are in the nature of capital expenditures. That is, they are amounts paid to acquire a capital asset.1 Furthermore, IRC Section 264 denies a deduction for the payment of premiums on a life insurance policy if the taxpayer is directly or indirectly a beneficiary under the life insurance policy, whether or not the death benefit is used to fund a buy/sell obligation.






1.     Rev. Rul. 70-117, 1970-1 CB 30; Whitaker v. Commissioner, 34 TC 106 (1960).

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