Edward E. and Constance M. Thorpe - Page 21

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          the years in issue on policies which insure the lives of ETCO's             
          corporate officers, notwithstanding the fact that ETCO was the              
          beneficiary of the policies.  ETCO also argues that premiums paid           
          on disability policies for Mr. Thorpe and Mr. Echols are                    
          deductible by ETCO.                                                         
               Section 264(a)(1) specifically provides that no deduction              
          shall be allowed for premiums paid on any life insurance policy             
          when the taxpayer is directly or indirectly a beneficiary under             
          the policy.  ETCO paid and deducted the premiums for insurance              
          policies on the lives of Mr. and Mrs. Thorpe and Mr. Echols.                
          ETCO was also the owner and beneficiary on each of the policies.            
          As such, section 264(a)(1) disallows a deduction of any amounts             
          paid by ETCO in connection with the life insurance policies.                
               With respect to the disability insurance policies on Mr.               
          Thorpe and Mr. Echols, respondent cites Rugby Prods. Ltd. v.                
          Commissioner, 100 T.C. 531 (1993), as authority for disallowing             
          ETCO's deductions for the disability payments in the years in               
          issue.  Generally, where an employee has all the rights of                  
          ownership in a disability insurance policy, and none of the                 
          benefits are payable to the corporation, the corporation may pay            
          and deduct premiums on the disability policy in accordance with             
          section 162.7  Rugby Prods. Ltd. v. Commissioner, supra at 538-             

               7Respondent does not argue that the deductions were not                
          ordinary and necessary business expenses under sec. 162.                    

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