Have Tax Questions? Ask a Tax Expert for Answers ASAP
Yes, this would definitely be considered taxable income to the CEO as it would most likely be considered compensation.
Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.
I think this would be further supported if the company deducted this reimbursement as a compensation expense.
You could review Publication 525 - http://www.irs.gov/publications/p525/ar02.html#en_US_2011_publink1000229090
Per this Publication - "Social security and Medicare taxes paid by employer. If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits."
The fact pattern above is somewhat different but the theory is the same. This would be compensation and taxable to the CEO.
Please let me know if you have any further questions.
Please don't forget to accept, thanks!