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Welcome and thank you for your question. I'll do my best to provide an informative answer. Please let me know if you need any clarification.
If the company (or a 2% or greater shareholder) is the beneficiary of the policy, the premiums are not deductible. If the employee is the beneficiary, the premiums are deductible but a portion could be considered taxable benefits to the employee to be included in their W-2.
The payout would not be considered taxable income. If company was the beneficiary, the book income would be a book/tax adjustment on Schedule M-1 of the 1120S.
I hope this helps and thanks again for the question.