[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.264-1]

[Page 562-563]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.264-1  Premiums on life insurance taken out in a trade or business.

    (a) When premiums are not deductible. Premiums paid by a taxpayer on 
a life insurance policy are not deductible from the taxpayer's gross 
income, even though they would otherwise be deductible as trade or 
business expenses, if they are paid on a life insurance policy covering 
the life of any officer or employee of the taxpayer, or any person 
(including the taxpayer) who is financially interested in any trade or 
business carried on by the taxpayer, when the taxpayer is directly or 
indirectly a beneficiary of the policy. For additional provisions 
relating to the nondeductibility of premiums paid on life insurance 
policies (whether under section 162 or any other section of the Code), 
see section 262, relating to personal, living, and family expenses, and 
section 265, relating to expenses allocable to tax-exempt income.
    (b) When taxpayer is a beneficiary. If a taxpayer takes out a policy 
for the purpose of protecting himself from loss in the event of the 
death of the insured, the taxpayer is considered a beneficiary directly 
or indirectly under the policy. However, if the taxpayer is not a 
beneficiary under the policy, the premiums so paid will not be 
disallowed as deductions merely because the taxpayer may derive a 
benefit from the increased efficiency of the officer or employee 
insured. See section 162 and the regulations thereunder. A taxpayer is 
considered a beneficiary under a policy where, for example, he, as a 
principal member of a partnership, takes out an insurance policy on his 
own life irrevocably designating his partner as the sole beneficiary in 
order to induce his

[[Page 563]]

partner to retain his investment in the partnership. Whether or not the 
taxpayer is a beneficiary under a policy, the proceeds of the policy 
paid by reason of the death of the insured may be excluded from gross 
income whether the beneficiary is an individual or a corporation, except 
in the case of (1) certain transferees, as provided in section 
101(a)(2); (2) portions of amounts of life insurance proceeds received 
at a date later than death under the provisions of section 101(d); and 
(3) life insurance policy proceeds which are includible in the gross 
income of a husband or wife under section 71 (relating to alimony) or 
section 682 (relating to income of an estate or trust in case of 
divorce, etc.). (See section 101(e).) For further reference, see, 
generally, section 101 and the regulations thereunder.