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IRS Rules Key Man Life Insurance Proceeds Are Excludable From Income for S Corps

In a Revenue Ruling, the IRS has found that an S Corporation’s accumulated adjustments account (AAA) is not increased by insurance proceeds received by the corporation for the death of an employee if such proceeds are not taxable.  Conversely, the Court also ruled that such accounts are not reduced by premiums paid on a life insurance policy by the company.  In the set of facts considered by the

IRS, an S Corp bought life insurance on one of its highly paid executives. The company is the beneficiary and pays the premiums.  In this situation, the IRS has ruled that the payment of the premiums does not reduce the company’s AAA and that any of the proceeds received by the company will be excludable from income and, thus, not increase the AAA.

Points of Interest

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By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors