Rev. Rul. 59-79

The Internal Revenue Service will follow the decisions of the United States Court of Appeals in Oreste Casale v. Commissioner, 247 Fed. (2d) 440; Robert V. Sanders et al. v. Charles I. Fox, 253 Fed. (2d) 855; and Henry E. Prunier et al. v. Commissioner, 248 Fed. (2d) 818. The issue in each case was whether the payment of premiums by a corporation on an insurance contract on the life of an employee-shareholder, in which the corporation possessed rights of ownership, resulted in income to the insured employee-shareholder.

In the Casale case, the corporation purchased a policy of insurance on the life of its controlling stockholder and president. The court found that the insurance contract was owned by and payable to the corporation and had been purchased to fund a contract which had been entered into by the corporation with the employee-shareholder. The court held that the payment of the premiums did not represent taxable dividends to the employee-stockholder since he received no immediate personal benefit from the corporate purchase of the policy, whereas the corporation had acquired a valuable corporate asset available to creditors in the event of insolvency.

In the Sanders and Prunier cases, the facts were that the insurance contracts were owned by the corporation, but the insured stockholders had the right to designate the beneficiaries to receive the proceeds on the condition that their stock be transferred to the corporation upon their deaths. In each case, the court held that the effect of the payment of premiums by the corporation was merely a conversion of cash into another corporate asset, an insurance policy, and that such action did not result in income to the individual taxpayers.

¹ Based on Technical Information Release 115, dated December 8, 1958.