Tax Facts

296 / If an employee or stockholder sells a life insurance policy to the corporation for its cash surrender value, does the employee or stockholder realize a taxable gain?

Updated: October 02, 2024 at 01:53 PM
Yes, if the cash surrender value is greater than the employee or stockholder’s net premium cost. The gain is ordinary income, not capital gain.1 Normally, there is no deductible loss where a policy is sold for adequate consideration ( Q 62). If the policy sold is subject to a nonrecourse loan, the amount realized on the sale includes the amount of the loan ( Q 280).2




1.     Gallun v. Commissioner, 327 F.2d 809 (7th Cir. 1964).

2.     Treas. Reg. § 1.1001-2(a).


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