Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson, the founder and CEO of the corporation. The corporation is the beneficiary of the multi-million dollar policy.
I.The corporation can deduct the premiums.
II.If Wilson dies, the corporation will receive the policy proceeds tax-free.
III.If Wilson's wife is the beneficiary instead of the corporation, the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV.If Wilson's wife is the beneficiary instead of the corporation, the corporation can deduct the amount of premiums paid as compensation.

Question

Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson, the founder and CEO of the corporation. The corporation is the beneficiary of the multi-million dollar policy.
I.The corporation can deduct the premiums.
II.If Wilson dies, the corporation will receive the policy proceeds tax-free.
III.If Wilson's wife is the beneficiary instead of the corporation, the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV.If Wilson's wife is the beneficiary instead of the corporation, the corporation can deduct the amount of premiums paid as compensation.
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Quizplus · Accepted Answer

Explanation:I. Incorrect because premiums paid on a life insurance policy where the payer is the beneficiary are not deductible as a business expense.II. Correct because life insurance proceeds received by the beneficiary upon the death of the insured are generally tax-free.III. Incorrect because the premiums paid on a life insurance policy for the benefit of an employee's spouse are not considered a tax-free fringe benefit for the employee.IV. Correct because if the corporation designates the premiums as compensation to Wilson (and thus indirectly to his wife as the beneficiary), and includes them in Wilson's taxable income, then the corporation can deduct the premiums as a compensation expense.

Raisor Corporation Pays an Annual Premium of $12,000 on the Whole