Rev. Rul. 56-400

Insurance premiums paid by a taxpayer for group life and hospitalization insurance policies, the benefits of which accrue to its commission salesmen, constitute allowable deductions from gross income as ordinary and necessary business expenses under section 162 of the Internal Revenue Code of 1954, whether or not an employer-employee relationship exists between the taxpayer and the insured, provided that the total commissions, together with the premiums for insurance coverage and any other remuneration attributable to their services, paid to and in behalf of such salesmen are reasonable in amount, and provided further that the taxpayer is not a beneficiary under such life insurance policies. See section 264(a) of the Code.

With respect to a salesman who is an employee under either the common law concept or as defined in section 7701(a)(20) of the Code, the insurance premiums paid by his employer in his behalf for group hospitalization and group-term life insurance are not includible in the gross income of such employee, but such exclusion does not apply to premiums paid for group-permanent life insurance. See section 106 of the Code; section 39.22(a)-3 of Regulations 118 made applicable under the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47; and Mimeograph 6477, C.B. 1950-1, 16.

With respect to a salesman who is not an employee under either the common law concept or as defined in section 7701(a)(20) of the Code, the exclusions from gross income provided by section 106 of the Code (for group hospitalization premiums paid in this case) and by section 39.22(a)-3 of Regulations 118 and Mimeograph 6477, supra , do not apply since such exclusions apply only to employees. Accordingly, under the broad concept of gross income as defined in section 61 of the Code, the insurance premiums paid in behalf of such a salesman for group hospitalization and group life insurance policies, the beneficiaries of which are designated by such salesman, are includible in his gross income for Federal income tax purposes.