Overview of Federal Tax Considerations
Tax treatment of the insured
• When a company buys insurance, premiums are generally deductible under section 162 as an ordinary and necessary business expense.
• Alternatively, if a company forgoes insurance, a deduction for losses incurred is generally taken into account in the taxable year in which all the events have occurred to establish the liability, the liability can be determined with reasonable accuracy and economic performance has occurred with respect to the liability (e.g. the loss is paid).
• Special considerations when the insurance company is related to the insured entity Over the last 40 years, the courts and the IRS have considered whether premium payments made to related insurance companies are deductible.
AEC EXECUTIVE ROUNDTABLE
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