BIR Ruling

September 27, 1973 D.M. Cera Insurance Agency Ground Floor, Insular Life Bldg. Ayala Ave., Makati, Rizal Gentlemen : This refers to your letter dated August 16, 1973 requesting opinion on the following questions: cdta "1. In the case of a close corporation which takes out insurance on the life of its top officer and designates the heirs of officer as beneficiary but the heirs, together with the top officer insured, are the only stockholders of the corporation, would the premium paid by the corporation be tax deductible as ordinary expense, having in mind the provision of Section 31, Par. 4 of the National Internal Revenue Code prohibiting the deduction when the taxpayer is directly or indirectly the beneficiary under such policy? "2. Again, in the case of a family corporation which insures the lives of several of its officers, who are all members of the family, and designates the heirs of the officers as beneficiaries and the heirs are not stockholders of the corporation, will the premiums be treated as ordinary expenses to the corporation? "3. In the event that the corporation may wish to take insurance on the members of its Board of Directors, which members of the Board are not necessarily officers of the corporation and assuming of course the Directors designate their own heirs other than the corporation, will the premiums be considered deductible expense?" In reply, I have the honor to inform you as follows: 1. The premiums paid by the corporation are not deductible, since the corporation is indirectly the beneficiary under the policy. (Sec. 31(a)(4), Tax Code). The taking of the insurance on the life of a top officer of the corporation, payable to the stockholder, makes the corporation an indirect beneficiary. (Mertens, Vol. 4A, Sec. 25.103 p. 435) 2. The premiums will not be treated as ordinary expenses and therefor, not deductible since the payments are not connected with the business of the corporation. 3. The premiums are deductible expenses for being ordinary and necessary although the insurance is taken on the members of the Board of Directors who are not necessarily members of the corporation since said Directors are entitled to compensation. However, in such case, the premium payments are considered income to the Directors subject to income tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."