275 / How is a corporation taxed on payments under an annuity contract?
With respect to the tax consequences to a corporation under an annuity or on living proceeds from endowment and life insurance contracts, the same rules that are applicable to personal insurance and endowment contracts ( Q 10 to Q 62) apply.1 The same rules that apply to increases in the cash value of policies for personal insurance ( Q 8) also apply to business-owned insurance.
To the extent that contributions are made after February 28, 1986 to a deferred annuity contract held by a corporation or other entity that is not a natural person, the contract is not treated for tax purposes as an annuity contract. Income on the contract is treated as ordinary income received or accrued by the owner during the taxable year.2 Thus, if payments received in a year plus amounts received in prior years plus the net surrender value at the end of the year, if any, exceed premiums paid in the year and in prior years plus amounts included in income in prior years, the excess amount is includable in income. The rule and exceptions are discussed in Q 513.
To the extent an annuity contract is not subject to this rule, payments received under the contract will be subject to the rules applicable to personal annuity contracts.