April 12, 2021
Split-dollar life insurance benefitting S corporation's sole shareholder and employee isn't a corporate distribution to a shareholder, but rather a taxable fringe benefit, holds Tax Court
In Ruben de los Santos, et ux. v. Commissioner, the Tax Court has held that compensatory split-dollar life insurance benefitting the sole shareholder of an S corporation, for which he and his wife are employees, may not be characterized as a corporate distribution to a shareholder under IRC Section 301(a). For purposes of taxing employee fringe benefits, the Court also held that the sole shareholder is treated as a partner of a partnership and economic benefits he realized are therefore taxable as guaranteed payments under IRC Section 707(a) and as ordinary income.