Rev. Rul. 70-117

The taxpayer, a domestic corporation, and its two stockholders entered into a trust agreement to be administered by an independent trustee. The agreement provided that: (1) the taxpayer would take out life insurance on the two stockholders and pay the annual premiums; (2) the policies would designate the trustee as beneficiary; (3) the stockholders would surrender their stock in the taxpayer to the trustee; and (4) upon the death of an insured, the trustee would convey the proceeds of the insurance to the insured's heirs and turn over to the taxpayer the insured's stock.

Held, the premiums paid by the taxpayer on the contracts insuring the lives of its stockholders do not represent ordinary and necessary business expenses of the taxpayer but are in the nature of amounts paid for the acquisition of a corporate asset (treasury stock). Accordingly, these expenditures are not allowable as ordinary and necessary business expenses under section 162 of the Internal Revenue Code of 1954. It is, therefore, not necessary to consider the application of section 264 of the Code to the instant case.

See Revenue Ruling 59-184, C.B. 1959-1, 65, for the Federal income tax consequences to shareholders of the payment by a corporation of premiums on life insurance policies used to fund stock purchase arrangements.