A small business pays the premium on a $250,000 group term life policy on a key executive. The business is the policyowner and primary beneficiary. Which statement about premium deductibility is correct?

Explanation

Under IRC §264(a)(1) and Treasury Regulation §1.264-1, no income-tax deduction is allowed for premiums on a life insurance contract when the taxpayer paying the premium is directly or indirectly a beneficiary. Because the business here is both policyowner and beneficiary (a key-person policy), the premium is non-deductible — but in exchange the death benefit is generally received income-tax-free under IRC §101. The claim that the premium is fully deductible as an ordinary and necessary business expense confuses this with employer-paid group term where the EMPLOYEE is the insured AND the beneficiary is the employee's family (then deductible). The response allowing a deduction up to $50,000 describes the EMPLOYEE's §79 exclusion from imputed income, not employer deductibility. And the response conditioning deductibility on convertibility to permanent insurance is fabricated — convertibility has no impact on deductibility.