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Officer life insurance premiums and cash surrender value and the OAA
Per Rev. Rul. 2008-42, premiums paid by the S Corporation on an employer-owned life insurance contract which the corporation owns and is a beneficiary of, don't reduce the S Corporation's Accumulated Adjustment Account.
note
Similarly, the life insurance proceeds received by an S Corporation on the death of an individual who was employed by the S Corporation within the last 12 months or who is a director or highly compensated employee don't increase its Accumulated Adjustment Account.
Although the Revenue Ruling doesn't explain this reasoning, it would seem that even though no deduction is allowed for premiums paid on any life insurance policy where the taxpayer is directly or indirectly the beneficiary, the nondeductible expense doesn't reduce the S Corporation's Accumulated Adjustment Account because the expense is related to tax-exempt income.
Therefore, UltraTax CS assumes amounts entered in the
Officer life insurance premiums
field in the Ms screen should transfer to Schedule M-2, Other Adjustments Account - Other reductions. Also, amounts entered in the Cash surrender value-officer life
field in the Ms screen should transfer to Schedule M-2, Other Adjustments Account - Other additions.If you want UltraTax CS to transfer amounts entered in the
Officer life insurance premiums
field to Schedule M-2, Accumulated Adjustments Account - Other reductions, enter code A
in the Schedule M-2 code
field. Also, if you want UltraTax CS to transfer amounts entered in the Cash surrender value-officer life
field to Schedule M-2, Accumulated Adjustments Account - Other additions, enter code A
in the Schedule M-2 code
field.If you don't want UltraTax CS to automatically transfer these amounts to Schedule M-2, don't enter amounts in the
Officer life insurance premiums
and Cash surrender value-officer life
fields in the Ms screen. Instead, enter the amounts in the Book expenses not deducted
and Income on books not on return
statement windows in the Ms screen, respectively. Also, don't enter a Schedule M-2 code for the amounts in the statement window.