Tax Facts

8768 / Are premiums paid by a corporation on life insurance to fund a stock redemption agreement taxable to an insured stockholder?

No. Even if the stockholder has the right to designate the policy beneficiary, the premiums are not income to the stockholder, provided that the beneficiary’s right to receive the proceeds is conditioned on the transfer of stock to the corporation.1

Similarly, premiums are not taxable income to an insured stockholder when a trustee is named beneficiary, provided that the trustee is obligated to use the proceeds to purchase the insured’s stock for transfer to the corporation.2

1. Sanders v. Fox, 253 F.2d 855 (10th Cir. 1958); Prunier v. Commissioner, 248 F.2d 818 (1st Cir. 1957); Rev. Rul. 59-184, 1959-1 CB 65.

2. Rev. Rul. 70-117, 1970-1 CB 30.

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