| Premium Paid By | Benefits Paid to | Policyowner | Tax Treatment |
Premiums |
Benefits |
| Individual(Including a sole proprietor) | Individual | Individual | Nondeductible(IRC Sec. 213 & 262) | Tax Free |
| Employer (Key person coverage or business reducing term) | Employer | Employer | Nondeductible (IRC Sec. 265) | Tax-Free (IRC Sec. 104) |
| Employer (under a QSPP) | Employee (Including C-corp. owners) | Employee | Deductible by employer (ICR Sec. 162). Employer-paid premium excluded from employee's taxable income (IRC Sec. 106) | Reported as Income (IRC Sec. 105) |
| Partnership, S-corporation (under a QSPP) | Partner, S-corp. owner | Partner, S-corp. owner | Deductible by partnership or S-corp. Included in partner's or S-corp. owner's personal taxable income (Rev. Ruling 91-26) | Tax-Free (Rev. Ruling 91-26) |
| Employee (under an Executive Bonus Plan) | Employee | Employee | Bonus paid to cover premium by employer is | Tax-Free(IRC Sec. 104) |
| Premium Paid by | Benefits Paid to | Policy Owner |
Tax Treatment |
| Premiums |
Benefits |
| Business or Owner | Business or Owner> | Business or Owner | Tax Deductible
Revenue Ruling
55-265 | *Reportable as Income,
Revenue Ruling 55-265 |
| Premium Paid by | Benefits Paid to | Policy Owner | Tax Treatment |
Premiums |
Benefits |
| Partnership of Corporation (under Entity Purchase Agreement) | Partnership or Corporation | Partnership or Corporation | Nondeductible IRC Sec. 265 |
Tax-free* IRC Sec.104 |
| Partnership or Corporation (under a Cross Purchase Agreement) | Insured's Partner or Fellow Shareholder | Insured's Partner or Fellow Shareholder |
*Benefits are paid to reimburse amounts paid to purchase disabled owner's business interest. The disabled owner may be subject to capital gains tax.
